HVAC execs weigh in on residential market challenges

Last week, executives from several publicly traded HVAC companies flew to sunny Laguna Beach, California, for an annual Morgan Stanley conference — and offered a frank assessment of the residential HVAC market. 

Catch up quick: While the figure includes commercial units, U.S. combined shipments of central air conditioners and air-source heat pumps in July fell 27 percent year-over-year, according to AHRI data released last week.  

What they’re saying: “We estimate that industry volumes in August and September will be down in that range, if not worse,” said Carrier CEO Dave Gitlin during a conference session. “This would represent the weakest industry Q3 volume in over a decade.” 

• “It’s hard to pinpoint the exact root cause,” he noted, “but clearly the combination of high interest rates and pressure on the consumer is increasingly weighing on consumer spending, including on new and existing home sales, leading to delayed residential HVAC activity.”
• Given the factors, along with distributors “aggressively and purposefully reducing their inventory levels,” he added, “we now expect [our] North America residential volumes to be down a bit more than 40 percent in Q3.”

Between the lines: While July’s 27 percent drop is noteworthy, the month faced a tough comparison, as Homepros reported, with manufacturers in July 2024 shipping more combined ACs and heat pumps than in any July since at least 2010.

The big picture: “We’ve known that it was going to be a bit of a noisy year,” said Lennox CTO Prakash Bedapudi, referring to the industry’s refrigerant transition. 

• Then additional challenges entered the mix: “[T]ariffs came in… The weather was cold. We had a 454B canister shortage… existing home sales were soft,” he noted. “So you have all these variables kind of hitting at the same time.”
• Meanwhile, distributors with R-410A inventory “need to sell through by the end of the year, because the regulatory change would make that of no value,” he added. 

Zoom in: At the same time, this year, the “consumer is heavier,” said Watsco’s Barry Logan. “I think people are spending less money on their homes.”

• “If you glance at Home Depot, same-store sales were up one percent. That would tell you units are probably down in all the stuff they sell, just a basic proxy,” he added. 
• “So it’s a heavier year. Is it rates? Is it the economy? Is it a sense of concern? Always.”

Yes, but: Despite the challenges, executives at each company argued that, structurally, the residential business is “fine,” as Trane CEO Dave Regnery put it. 

• The silver lining: Next year, “[Y]ou’re going to be facing some relatively easy historic comps,” said Gitlin, referencing the quarter’s volume trend. 
• “It’ll be a great business well into the future,” Regnery added. “2025 is going to be a difficult year for a lot of different reasons. But at the end of the day, I think, we’ll move beyond this in 2026.”