< Previous20 FEBRUARY 2019HIGH-PERFORMANCE HVAC TODAYSTEP SIX: PRICE AND SELL THE AIR UPGRADESome companies are great at pricing equipment replacement, but haven’t de-veloped a method to price duct system upgrades. Our research and contrac-tor interviews helped create a flat rate pricing system for this set of repairs. This flat rate pricing is based on typ-ical cost for the repairs listed above. It provides adjustable labor costs, local material costs, profit margins, and vari-ables contained in each job. The pricing can be adjusted by each contactor. The objective of the Air Upgrade is to substantially improve the com-fort and efficiency of an HVAC system and allow equipment to perform as in-tended by the manufacturer. It is most often used as an add-on sale at the time of equipment replacement where a total system price cannot be shopped. When it comes to selling Air Up-grades, remember this: they have no set market value because testing and diagnostics create a unique product only you can offer. Unique products result in a unique-ly high profit that is worth the cost to you and your customer. nostics procedure, we discovered a uni-versal set of repairs that solve many air- flow problems detected from this testing. The exact repair type varies with each system, as it does with any field installed system. We have categorized these repairs into two groups.Typical Equipment Repairs:t Upgrade filters to reduce resis-tance to airflowt Adjust the fan speed settingt Clean the blower and coilt Verify fan airflow once repairs are complete.Typical Duct System Improvements:t Increase return duct capacityt Increase supply duct capacityt Basic duct improvementst Reduce duct airflow loss.TECHNICALRob “Doc” Falke serves the industry as president of Nation-al Comfort Institute, Inc., an HVAC-based training company and membership organization. If you’re an HVAC contractor or technician interested in more information on Air Upgrades, contact Doc at robf@ncihvac.com or call him at 800-633-7058. Or go to NCI’s website at nationalcomfortinstitute.com for free information, articles, and downloads.22 FEBRUARY 2019HIGH-PERFORMANCE HVAC TODAYLast year the U.S. economy was kind to the HVAC industry. By one measure, the 2018 U.S. Refrigeration and HVAC equipment new orders, 2018 trended towards being the best year. New orders to man-ufacturers during the 12 months through October (most recent data available) totaled $47.3 billion, the highest annual total ever. This is an increase of 6.5% from the compara-ble period through October 2017, marking the swiftest pace of growth for equipment new orders in more than five years. The new orders measure includes HVAC, com-mercial and industrial refrigeration, and freezer equipment. On the employment side, there are more plumbing and HVAC contractors operating in the U.S. than ever before. Annual U.S. plumbing and HVAC contractor employment aver-aged a record 1.12 million individuals during the most recent 12 months, up 5.6% from the year-ago level. This marks the fastest annual employ-ment growth in the industry in two years. However, that is not to say it has been a year without challenges. Momentum on the doorstep of 2019 is decidedly weaker than when we were heading into 2018. CANARY IN THE COAL MINEWe sometimes refer to the U.S. housing market as our “canary in the coal mine” for the broader U.S. economy. The idiom refers to coal miners’ early-20th cen-tury practice of bringing caged canaries into the depths of mines to detect carbon monoxide and other toxic gases. The canaries were more sensi-tive to the gases and would succumb to them be-fore the miners, their deaths serving as a warning Will 2019 Be Kind to the HVAC Industry? Changes are AfootBy Connor LokarMANAGEMENTThe U.S. Single Family Housing Starts growth rate.2013-60-40-2002040602014201520162017YearForecasted Annual Growth RateAnnual Growth RateQuarterly Growth Rate3.9Rate of Change Percentage of Growth2018201920203FEBRUARY 2019 23HVACTODAY.COMest year-over-year drop since 2011. The Single-Family Housing market serves as a leading indicator, because it has historically started to fade in the face of economic headwinds before the U.S. macroeconomy. In this cycle, the toxic gases appear to be rising mort-gage rates, home-price inflation due to labor/land/material costs (impacting both housing affordability and builder profitability), and more recently, wan-ing confidence. This suggests a leaner year ahead for HVAC manufacturers, distributors, and contractors tied to the U.S. housing market. Increasing interest rates are impact-ing the housing picture both on the new and existing home sale front. U.S. Conventional 30-year Mortgage Rates averaged 3.95% in 2017, which is a bargain compared to the most re-cent level of 4.64% at the end of 2018. Higher mortgage rates are like-for the humans to retreat. A somewhat morbid practice by current standards, but effective. Today, unfortunately, our econom-ic “canary” appears to be under duress and pointing to signs of danger for the overall 2019 U.S. business cycle as well as for the HVAC industry. THE ECONOMIC INDICATORSU.S. Single Unit Housing Starts during the 12 months through Novem-ber totaled 880,000 units, up 3.9% from the same timeframe a year ago. While on the surface this appears pos-itive, it marks the most anemic annu-al pace of growth for the U.S. housing market in more than six years, and that pace continues to slow. The most recent monthly data indicates a trend of decay, as housing starts in Novem-ber 2018 alone fell 12.7% below the November 2017 level.Additionally, the National Asso-ciation of Home Builders Hous-ing Market Index monthly reading, an effective measure of home-builder sentiment, was down 24.3% in December 2018 from the De-cember 2017 level, the sharp-ly pushing would-be buyers, perhaps first timer millennials, back to the sidelines as the higher financing cost has pushed ownership into an unaf-fordable range. CONSUMER RESPONSEExisting home owners who may have locked in at attractive, sub-4.0% rates following the Great Recession may also be reluctant to upgrade to larger homes with a higher rate. Instead they may be more content to stick out their current living situation. This has had an appar-ent effect on home sales. New U.S. Home Sales, in Oc-tober 2018, were 42,000 units, down 14.3% from the October 2017 level. Again, this is the sharpest year-over-year contraction in monthly data since 2011. 24 FEBRUARY 2019HIGH-PERFORMANCE HVAC TODAYhomeownership, as owners spend to fix up any blatant weaknesses in the home to prepare for selling. This makes the contraction in existing home sales heading into 2019 problematic. How? It may stall the robust remod-attest to this, as one of the first things I did upon buying my first home in 2016 was having a two-zone ductless mini-split HVAC system installed. Additionally, sizable remodeling ex-penses also occur in the last year of U.S. Existing Home Sales, which account for most of overall home sales, are in recession, down 2.6% during the last 12 months, on average. Exist-ing Sales in November alone, at 5.3 million units, were down 7.0% from October 2017. Softening home sales are problem-atic for several reasons, the first be-ing it reflects weaker demand. This will likely lead to builders pulling back on new construction in many markets until conditions improve. Second, having fewer existing home sales typically leads to a slowdown in remodeling expenditures. Studies have shown that homeowners typically incur sizeable remodeling expense in the first year of home ownership, as they spruce up the home to live in. I can anecdotally MANAGEMENTAnnual Housing Start Trends.201307515002253002014201520162017YearForecasted Rolling Annual Total Rolling Annual TotalRolling Quarterly Total880.00Data TrendThous Units, QuarterlyThous Units, Annual20182019202003006009001200FEBRUARY 2019 25HVACTODAY.COMcember 2017 level, the harshest month-over-month drop since early 2016. The S&P 500 monthly data trend ended 2018 lower than it opened, the worst calendar-year decline for the U.S. stock market since 2008. This could even-tually diminish the confidence of the consumer and perhaps contribute to further weakness in the housing and residential remodeling markets.All of this suggests that 2019 will be a tougher year for HVAC contractors on the residential side of the business. As a lagging sector, nonresidential activity projects to grow throughout the year, but we expect new residen-tial housing construction to contract mildly in 2019. Some markets, perhaps with stron-ger population inflows, may fare bet-ter this year while others will feel more overt contraction. However, decline this year should be mild and brief, so be sure to keep a flexible cash reserve ready or access to financing for late 2019-early 2020 to gear up for the next growth cycle. eling activity of the last several years as new construction is poised to mildly contract next year as well. HVAC contractors will want to make a priority of service and maintenance in 2019 as new equipment installation and replacement could be heading for a slowdown. THE IMPACT OF THE STOCK MARKETAn additional, more recent, head-wind to the housing market and macro-economy are the woes of the U.S. stock market. In December, it flirted with bear market territory (typically defined as a 20% drop from a prior peak) be-fore a meek rally to close the month reeled it back from the cliff’s edge. Ultimately, the S&P 500 finished De-cember 2018 down 6.2% from the De-Connor Lokar is a Program Economist at ITR Econom-ics, a 60-year-old economic research and consulting firm. Lokar specializes in the construction industry and provides economic consulting services for businesses, HVAC trade associations, and Fortune 500 companies. He is a graduate of the economics de-partment of the University of Michigan. His economic insight and forecasting experience play a key role in ITR Economics’ 94.7% forecast accuracy. To learn more about ITR Economics, visit www.itreconomics.com or follow him on LinkedIn (ncilink.com/ConnorLokar).Thous Units, Annual26 FEBRUARY 2019HIGH-PERFORMANCE HVAC TODAY “Ask the Coaches” – A New High-Performance Summit EventBe sure to attend this one-hour session following our very popular Idea Meeting at 5 pm on Wednesday, April 16, during Summit Week 2019.Ask the Coaches is a special ques-tion-and-answer session where five of the top HVAC industry coaches will focus on customer-facing topics including sales, marketing, and customer service. This is a unique opportunity to interact directly with industry experts that can help make 2019 your best year ever. The coaches include:u Steven Dale, Trainer and Coach, Power-Selling Prosu Drew Cameron, Owner, HVAC Sellutionsu David Holt, Director of Business Train-ing and Coaching, National Comfort Instituteu Ben Middleton, National Sales Train-ing Manager, Goodman, Inc.u Tom Piscitelli, President, TRUST Sales TrainingDon’t miss what is sure to be a spirit-ed and highly informative session with some of the industry’s best coaches at Summit 2019! Register today at ncilink.com/s19reg. NCI MEMBER UPDATEJennifer BagleyNCI Welcomes Another New Vendor PartnerThe latest company to join the growing ranks of National Comfort Institute, Inc.’s Training Incentive Partner Program is Online-Access, Inc., of Port Huron, MI. Online-Access helps contractors build fully-managed websites that look and work great on every device – desktop computers, laptop computers, tablets, and mobile phones. NCI members who avail them-selves of Online Access’ products and services can earn Training Bucks that go toward their NCI training and certification class costs as well as fees for events such as NCI’s Summit.ONLINE-ACCESS OFFERS MEMBERS THE FOLLOWING:Website development: Three package levels are available based on your market and needs. NCI members who do business with Online access can earn NCI Bucks toward paying for NCI training and event costs. Furthermore, if you are not a user off Online-Access services, you can use this order form at ncilink.com/PagePReg to save $200 off your Website Startup.Online Review Management: Nearby Now is a review and promotion system that captures the goodwill of your current clients and leverages it to generate fu-ture leads. It is available for use with PagePilot or WordPress websites and it also Qualifies for the NCI TIPP program.Social Media Management: Depending on the package you choose, you can get daily postings catered to your preferences, Facebook page set up, profile pic-ture and banner design with four seasonal changes, boosting ads, contests, and more. Social media services are available as a standalone subscription. This also qualifies for NCI’s TIPP.Learn more about how the NCI Member rewards program works and how you can earn bucks on the products you buy through our preferred vendors. Go to ncil-ink.com/TIPP to learn more about how this member-only benefit works for you.This program is ONLY available for NCI members who sign up. Learn more on the Online-Access Vendor page (you have to be logged in to the NCI website to access) at ncilink.com/OLA.Summit Keynote Speaker Announced!National Comfort Institute has announced the keynote speaker for the High-Performance HVAC Summit 2019, to be held in Orlando, FL. Jennifer Bagley, CEO of CI Web Group, an HVAC Digital Marketing Agency in both the U.S. and Canada, will talk about how to create a system within your company that produces clarity and focus and the ability to execute.If you are looking for the inspiration to create dramatic improvements in all your communications, to en-hance the perceived value of your company, and to speed up company growth, then be sure to register for the Summit event today.Visit GotoSummit.com to learn more about all the sessions and special events happening at Summit 2019. Questions? Be sure to call the NCI Customer Care line at 800-633-7058.FEBRUARY 2019 27HVACTODAY.COMPHOTO OF THE MONTHDustin Cole’s entry is the February 2019 winner of our Photo-of-the-Month contest, as voted on by the subscribers to the High-Performance HVAC Today magazine and visitors to the website. He will receive a $50 gift card.You can too – submissions are always welcome. If you’d like to submit a photo for consideration in our Photo-of-the-Month contest, click ncilink.com/POMSubmit and fill out the information as requested. Be sure to include your photo!!“Who says flex can’t be done right?” — Dustin Cole, Cole Air, Inc., Lake Charles, LA28 FEBRUARY 2019HIGH-PERFORMANCE HVAC TODAYHVAC SMART MARTFEBRUARY 2019 29HVACTODAY.COMAdvertiser IndexHIGH-PERFORMANCEHVAC TODAY TMAD INDEXBaker Distributing Company | BakerDist.com ..........................................................................27Dwyer Instruments, Inc. | www.dwyer-inst.com .......................................................................2Goodman Manufacturing | www.GoodmanMfg.com .............................................................6Jackson Systems | www.JacksonSystems.com ..........................................................................9Lazco Corp. | www.LazcoCorp.com ...............................................................................................10R.E. Michel Company | www.REMichel.com ..............................................................................20The New Flat Rate | www.TheNewFlatRate.com .....................................................................28To Your Success | ToYourSuccess.com .........................................................................................28TSI Inc. | www.TSI.com/comfort .......................................................................................................5United Refrigeration Inc. | www.uri.com ....................................................................................24To Subscribe to High-Performance HVAC Today:ONLINE: Visit HVACToday.com/subscribe for a FREE digital subscription.PRINT: 1 year/$72; single copy $7. Canada: 1 year/$92; single copy $9. Payable in advance with U.S. funds. Prepaid subscriptions may be sent to: High-Performance HVAC Today, PO Box 147, Avon Lake, OH 44012. Phone: 440-949-1850; toll free 800-633-7058; FAX 440-949-1851, or visit HVACToday.com/subscribe to order online.PublisherDominick GuarinoEditor-in-ChiefMike WeilArt DirectorConnie ConklinOnline Development DirectorBrian RosemanSales ManagerDave KenneyCirculation ManagerAndrea Begany- GarsedEditorial AssistantMarge SmithEmail us at contactus@hvactoday.com with your comments and questions.Next >