Steady Growth Expected in Both Residential and Commercial Sectors Plumbing and HVAC contractors can look forward to a positive economic climate in 2016, with a continued increase in new residential and commercial construction. Strong sales of existing homes – including a growing number of purchases by move-up buyers – will support the remodeling market. However Read more
2015 December – 2016 January
Steady Growth Expected in Both Residential and Commercial Sectors
Plumbing and HVAC contractors can look forward to a positive economic climate in 2016, with a continued increase in new residential and commercial construction. Strong sales of existing homes – including a growing number of purchases by move-up buyers – will support the remodeling market. However, an increase in interest rates, tight credit conditions may make it more difficult to finance expensive projects, and the 2016 presidential election and the threat of global terrorism remain wild cards for the U.S. economy.
“Across the country, builders can sell anything they construct,” said Lawrence Yun, chief economist, National Association of Realtors (NAR). “Demand for new homes exceeds supply, and it’s likely that many builders will be ramping up production in 2016.”
The National Association of Home Builders (NAHB) also forecasts strong growth in the New Year with 1,255,000 housing starts in 2016, up from 1,119,000 in 2015. That includes 877,000 new single-family homes and 378,000 new multifamily starts. As for home sales, the NAHB predicts 642,000 new single-family sales and 4,664,000 existing-single family sales in the next 12 months.
In a September housing report, NAHB chairman Tom Woods, said “It is encouraging to see new-home sales continue to tick upward. Builders are also increasing their inventory even as they face difficulties accessing lots and labor.”
Regionally, sales for the month rose 20.5 percent in the West and 4.5 percent in the South. Sales fell 28.6 percent in the Northeast and 8.6 percent in the Midwest. The inventory of new homes for sale was 232,000 units in November, a 5.7-month supply.
Looking at 2016 existing single-family and condominium sales, Yun says, “Move-up buying activity will be particularly strong. With rising values, owners will have more equity to purchase a more expensive home,”
However, a critical issue for many homeowners – as well as businesses – is the availability financing to pay for new projects. The Federal Reserve’s decision to raise rates in December for the first time in a decade will have a ripple effect upwards on both mortgage loans and construction lending. The NAHB projects that a typical fixed-rate 30-year residential mortgage will go up from 3.88 percent in 2015 to 4.55 percent in 2016.
“The Federal Reserve’s decision to raise short-term rates is the first of many increases over the next couple of years,” said Yun. “Although this first move will likely have minimal impact on mortgage rates, additional hikes will push borrowing costs to around 4.50 percent by the end of next year. With home prices expected to continue rising, wages and new home construction need to start increasing substantially to preserve affordability.”
On the positive side, Yun sees a continued improvement in mortgage availability. He notes that lenders are becoming more comfortable approving mortgage loans for buyers in the middle of the credit score spectrum.
“Since this is a presidential election year, there will be much discussion about tax breaks,” Yun said. While Congressional action is unlikely in 2016, it’s possible that the mortgage interest deduction for second homes or the 1031 property exchange program could be changed in 2017 or beyond.
The commercial sector
Sustained job growth throughout the country and improving credit conditions are expected to support an increase in commercial real estate activity, according to an NAR forecast.
“Temporary turbulence in the financial markets, a stronger U.S. dollar hurting exports and economic weakness overseas chipped away at third quarter growth and led to some deceleration in the pace of commercial investments,” Yun said. “The good news is that these deterrents are slowly residing, which should ultimately reawaken the growing appetite for commercial space heading into 2016.”
National office vacancy rates are forecast to decrease 0.8 percent to 14.8 percent in the coming year as continued job creation drives demand. The vacancy rate for industrial space is expected to decline 1.4 percent to 9.7 percent, and retail availability to decrease 1.3 percent to 11.3 percent, according to NAR.
With new apartment construction projects coming through the pipeline in several markets, multifamily vacancies are forecast to increase over the next year, from 6.1 percent to 7.3 percent.
Regionally, several states in the South and West have outperformed the rest of the country in job growth over the past year. Led by strong demand for apartments from faster household formation and rent growth, metro areas in those states are expected to see elevated levels of new construction, which will lead to a slight uptick in vacancy rates.
“The best days for multifamily housing could be winding down as new construction has already surpassed historical averages,” adds Yun. “This sector has been the industry’s top performer over the past several years as a result of younger households struggling to become homeowners and the demand for apartments far exceeding supply in many markets.”
Remodeling market may soften
Remodeling projects and home additions are an important part of the day-to-day business for many plumbing, heating and HVAC contractors – especially in states with stable or declining populations. In that regard, a third-quarter survey by the National Association of the Remodeling Industry (NARI) found a softening in this market sector.
The most recent NARI Remodeling Business Pulse (RBP) data of current and future remodeling business conditions stood at 6.03 (above 5 indicates growth), a decline from the 6.48 recorded in June. While still positive, this rating points to slower growth in the months ahead. The NARI study showed:
- Number of inquiries was down 4.6 percent
- Requests for bids was down 4.0 percent
- Conversion of bids to jobs was unchanged
- Value of jobs was down 4.6 percent
“Remodelers are becoming more realistic and accepting of the slow growth other economic indicators are confirming,” said David Merrick, chairman of the NARI Strategic Planning & Research Committee. “We are adjusting to slow sustainable growth and are less optimistic. Our customers are being careful about budgeting and taking on bigger projects, so leads may be down a little, but the leads we are getting are more focused and on target and budget oriented.”
However, about 53 percent of remodelers in the survey expected business growth in the coming months, compared with only 15 percent seeing any level of decline.
A new generation of owners
One of the key trends of 2016 and the years ahead is the arrival of the Millennial generation. Now in their 20s and 30s, these young adults will be buying homes, launching entrepreneurial businesses and playing an increasingly greater role in the U.S. economy.
“Young adults, who make up the majority of all renter households, are typically more optimistic about their future,” said Yun. “As more of them settle down and begin plans to start a family, the allure of owning their own home as well as the long-term financial stability homeownership provides will drive their emergence into the housing market. However, the extent to how fast this occurs will greatly depend on more entry-level housing supply coming onto the market and needed improvements in affordability conditions.”
Certain plumbing design choices and building contractor practices can promote the growth of microorganisms in new plumbing systems. This can lead to corrosion of metals, increased metals concentration in the drinking water, holes in pipe walls, and waterborne illnesses. Basic steps can prevent the problem from occurring in the first place. INTRODUCTION TO DISASTER Read more
Certain plumbing design choices and building contractor practices can promote the growth of microorganisms in new plumbing systems. This can lead to corrosion of metals, increased metals concentration in the drinking water, holes in pipe walls, and waterborne illnesses. Basic steps can prevent the problem from occurring in the first place.
INTRODUCTION TO DISASTER
The story is repeated over and over. Occupants of a new building notice either discolored water coming from the water faucets or a “rotten egg” odor coming from the hot water.
Typically, what will happen next is that the plumbing contractor, realizing that corrosion is occurring, will pull the sacrificial anode rod from the hot water storage tank. The rod in a hot water storage tank is there to slowly corrode over many years, with the rod’s metallic properties diverting the flow of electrons to sacrifice itself to corrosion and protect the storage tank. But, in these cases, the anode rod has greatly corroded over a few weeks or months. The plumbing contractor will replace the rod, only to see the new rod corrode quickly again.
Stray electrical currents or the connection of dissimilar metals are then blamed for the system-wide corrosion. Wires are added to connect various parts of the piping system for diverting electrons to a different path.
The problem persists.
MICROORGANISMS AT WORK
What most people don’t know is that the problem is of microbiological origin. Microbiologically influenced corrosion (MIC) has not been appropriately understood or acknowledged in the drinking water industry—in municipal water systems or in plumbing systems.
Microorganisms are everywhere, and there are many different types of them. Some directly cause human illness and some do not. All waterborne microorganisms can grow into out-of-control populations when there are long periods of water stagnation or low flow and when disinfection chemicals are in inadequate concentrations. Under such conditions, microorganisms attach to plumbing system surfaces, both metal and non-metal. The microorganisms secrete an enzyme that forms a protective barrier around them, and they begin to multiply. This buildup of enzyme and microorganism colonies on surfaces is called a biofilm.
The biofilm is acidic and can create conditions at the pipe wall that allow metal to corrode. Metals that the plumbing sys- tem is made of, such as copper, iron, and even lead, have been found to corrode and their concentrations found to be increased in the drinking water when biofilms are present. Pinhole leaks in copper pipes have also been found. In addition, lower doses of chlorine and other disinfectants cannot reach the microorganisms protected in the biofilms. Instead, disinfectants get used up by reactions with the surface of the biofilms. This creates the environment for the growth of microorganisms that cause human illness if they are accidentally introduced into the water system.
Once a biofilm is firmly in place in a plumbing system, it is very difficult, if not impossible, to remove. It cannot be flushed with high-velocity water because the required water flows and pressures cannot be achieved in plumbing systems. The biofilm cannot be removed by disinfection because many modern plumbing materials, such as PEX® piping, cannot come in contact with the high concentrations of disinfection that are needed.
PREVENTIVE MEASURES IN PLUMBING DESIGN
Proper plumbing design is the first line of defense against the growth of microorganisms in a plumbing system. In general, in water with low or no disinfection, whenever an excessive quantity of water is stored and excessive surface area is available in the plumbing system, microorganisms can get the upper hand and form biofilms.
Plumbing designers should carefully plan the capacity of the water system. In modern plumbing systems, the high hot waterflow demands of large bathtubs and Jacuzzis control the plumbing system design. This leads to installation of large water softeners and hot water storage tanks which are oversized for typical water usage in the building when the tubs are not in use. This creates a long residence time for water inside the plumbing system.
Another area where biofilm development is typically found is in hot water recirculation systems. In larger residences and buildings, hot water is re-circulated between the faucets throughout the building and the storage tank in order to provide water at the desired elevated temperature immediately when a faucet is opened. The recirculation piping adds extra storage of water and residence time in the plumbing system and helps spread microorganisms from a location of biofilm development to other parts of the hot water system.
Water conservation devices also increase the time that water spends in the plumbing system.
Water treatment devices cause issues in that many remove disinfection from the water, provide a large volume of water storage, and provide greatly increased surface area on the treatment media, such as on physical filters, granular activated carbon, and softener resin.
There is no room in this article to discuss plumbing design details. Just be aware in plumbing design that disinfected water should flow in the plumbing system with minimum residence time and minimum surface area contact.
PREVENTIVE MEASURES DURING CONSTRUCTION
Construction of a building takes months and sometimes over a year or more. During this time, any water that has been introduced into the water service line and the interior plumbing system is stagnating in the pipelines and forming biofilms. Building contractors need to be aware of this. Routine flushing and disinfection of all on-site pipelines should be performed. The disinfection concentration, and even the microbiological activity, can be measured and documented to show that no problems occurred under the building contractor’s watch.
Although there are many details that can help prevent microorganism growth, generally be aware that flushing, disinfection, and monitoring can prevent the growth of microorganisms and the development of biofilms in the piping system.
Everyone involved in the design and construction of buildings should be aware that microorganisms can and do significantly affect water quality in plumbing systems and can even weaken the pipe itself. Modern plumbing systems with large bathtubs, increased use of water treatment devices, materials of construction that cannot come in contact with high disinfection concentrations, and water conservation devices contribute to the likelihood that microorganisms will grow in the plumbing system and form biofilms on pipe and tank surfaces.
Plumbing designers can do their part in preventing the growth of microorganisms and the development of biofilms by minimizing the residence time of water in the plumbing system and the surface area that the water contacts. Building con- tractors can do their part by routinely flushing the pipelines, disinfecting the water, and documenting disinfection concentration and microbiological activity.
Abigail Cantor is the founder of Process Research Solutions, LLC, a chemical engineering consulting firm specializing in drinking water quality issues.
When the economy and construction is booming, contractors may be able to get away with less-than-perfect management practices and financial controls. However, since the major housing correction about 10 years ago, plumbing contractors and businesses of all sizes have had to adjust and pay more attention to the internal side of their operations, especially key Read more
When the economy and construction is booming, contractors may be able to get away with less-than-perfect management practices and financial controls. However, since the major housing correction about 10 years ago, plumbing contractors and businesses of all sizes have had to adjust and pay more attention to the internal side of their operations, especially key financial factors. However, we all get busy sometimes and need a quick refresher. Here are a few key tips contractors can use to use to review and run your business operations more efficiently and successfully.
Estimate Jobs Accurately
For many projects, contractors must submit bids well in advance of the anticipated start date. However, the actual cost of materials, labor, permits, and other factors can change before the job is completed-and sometimes even before it starts.
Today, accurate estimating is more important than ever. Otherwise, you can underbid on a job and wind up losing money and profit in the end. While everyone today is anxious to win a job, there’s no point in sending out bids so low you can’t make a profit on the work.
Handle change orders quickly
Here’s another area where contractors can get yourselves into trouble unless you estimate your costs accurately and communicate the situation to your customer. Determine the extra costs and get the customer to approve the change order quickly. That’s the best way to be sure you don’t end up eating those costs.
Stay on top of billing and collections
In leaner times like this, customers can start falling behind on their payments. Tracking your account receivables and the incoming cash flow is essential in order to identify collection problems and take corrective action before it’s too late.
In fact, contractors are advised to strive to be ahead in their billing on progress payments – just in case the customer runs into a problem. That means billing a littler more than your incurred costs plus a share of the profit you expect to recognize from the job.
If payments do fall behind, be polite but persistent in your collection activities. Keep the lines of communication open and try to work with your customer to bring in at least a partial payment, if possible. If you call every one – two days with a gentle approach not in anger or force, you might be paid before another vendor who sits back quietly.
Pay your own bills on time
By regularly paying your bills on time, you may be able to negotiate better terms with your vendors or receive advance notice on special sales or inventory closeouts on materials you buy. In fact, if you have been doing this, have you asked your sales or supply contact for a discount or special? Maybe it’s time to leverage your loyalty and partnership.
Review each project’s financial results
Get into the habit of reviewing the actual financial results of every project after completion. Look at the original budget, the impact of any change orders and the actual costs. If the profit on the job was less than expected, try to determine the cause. And if there was a flaw in the estimating or budgeting process, the time to update the figures is before submitting the next bid, not afterward. You don’t always need to add a higher price on your next bid, many times you will find internal processes, using new technology, or using new installation processes or products that vastly reduce your expenses to make a higher profit.
Reduce your risks
Review your insurance policies with your agent on a regular basis and keep your coverage up to date. The number of construction-related lawsuits continues to grow and you need to protect your business. If you hire and subcontractors on projects, be sure to verify that they are bonded and insured to limit your own potential liability. In addition, setting your own safety procedures can vastly reduce your worker’s compensation claims and insurance rate by a substantial amount. This means you can use that extra cash flow as pure profit or allow you to earn more jobs with the ability to submit lower bids with the insurance savings. Having a quality safety policy and procedure in place is vital to your business but very few contractors take advantage of this opportunity.
Plan training activities that boost morale while adding to the company’s base of skills. People generally work harder for a business when they feel the company is taking care of them. Keeping your employees up-to-date on installation techniques, new products and skills will give you an advantage over your competitors. Think long term and remember that market conditions are always changing.
Manage your overhead
Take a close look at your financial spreadsheet and analyze those monthly costs. There may be ways to cut your utility bills, reduce monthly bank fees, revamp your business cell phone plan, or your inventory procedures.
Think seriously about reducing any costs you can. Good cost-containment measures can make or break a business in leaner times.
I just finished up a year of traveling for business and have learned several lessons on the road. When I travel by plane, I am TSA Pre-check so I never need to stand in the long line waiting for the x-ray machines. There’s no need to pull my shoes off or take my computer out Read more
I just finished up a year of traveling for business and have learned several lessons on the road. When I travel by plane, I am TSA Pre-check so I never need to stand in the long line waiting for the x-ray machines. There’s no need to pull my shoes off or take my computer out of the bag. I recently traveled from Phoenix, AZ and when I got to airport I discovered the Pre-Check line was down. In addition, there were about 150 people in line with only three lanes open and a forth is sitting vacant. At the end of this line was a sign that said, “Questions? Tweet TSA, @askTSA.” So I quickly pulled out my phone and sent over a question via twitter that said, “Why do we not have all 4 lines working and why is Pre-Check shut down?”
Before I got through the line I already have an answer from TSA. They came back and said that they try to match the expected load with staff, but missed the fact that the colleges in AZ were out for the holidays that added to the additional traffic. They did say that they were working to get extra help and had a guy walking the line asking people if their flight was leaving in the next 30 min. If so, they would move that person to the front of the line. So they were pro-active in doing what they could to help out.
I went through the line and got my computer out along with my toiletries and proceeded through the scanner. I then put my toiletries back in my bag and walked away without my computer. I realized this tremendous error when my flight landed in Denver and was not feeling good about this turn of events. Once again, I pulled out my phone and tried the TSA twitter account again. This time I tweeted, “Help, left my computer at terminal 2 in Phoenix, what do I do?”
They tweeted back and asked the time I was at the terminal, the date, and which terminal etc. After I replied, they said someone would call me when they located my computer. A lady called the next morning and said she had my computer. I arranged for it to be picked up and everything was all right in the world. I realize the TSA group is not always our favorite friends when we travel but when I needed them most. They were there for me using the latest technology and responding to my needs.
I stayed at a Marriott hotel called the Epicurean, a boutique hotel and gave my rental car to a valet to park. When I went to check out, I gave the attendant my claim check and went back in to settle up my stay at the front desk. The attendant pulled up and parked my car outside and ran out to get another car. When he came back by I asked for my keys but he did not have them. They were in his hand when he locked up my car but left them in another car. So I immediately thought, “My rental car is locked and the keys may be anywhere in the parking lot or possibly on the way to the airport in someone else’s car.” In addition, he cannot remember exactly where he left them. I had a flight home in a couple of hours so I was a little frustrated.
Then enters Genevieve Wojick, the front desk clerk who had helped me check out. She had seen me out front and noticed that I had not left yet and came out to see if everything was OK. She was cool and calm and told me not need to worry, she would handle everything. She said she would arrange for the car to be towed or a second set of keys delivered to get the rental car back. She also would get me a ride to the airport and let the rental car company know what was going on and that the hotel would handle any extra charges and I would not miss my flight home.
As she was calling a cab, the attendant came running back in and said he found my keys! I was so impressed that she had the ability to work past this potentially huge problem and handled it with such a calm manner that provided comfort. She was the “voice of reason” for me during this problem. Marriott does a great job in hiring people to work their hotels and she is a testimony to going the extra mile.
After arriving at the airport, I put my phone down on the scanner to read my boarding pass as I boarded the flight. The United Airlines gate agent said, “Thanks for flying with United Mr. Hinshaw.” I listened in amazement as she called out the people behind me by name as well. That has only happened one time before in my travels and it sure makes an impression.
As I boarded the plane, a tall flight attendant named Sylvia welcomed me aboard. She had a distinctive accent and I asked her where she was from. She responded “Germany.” She saw a young mom coming down the isle with a baby and child seat that was having a hard time. Sylvia said, “Let me help you.” She quickly grabbed the child seat and walked her to her isle. Coming back, she saw an elderly woman about 5 foot tall looking up at the bins wondering how she would get her bag up that high. Sylvia took the bag and hoisted it up for her pleasantly without a problem. That made me feel good about flying United.
So how does this apply to you and your business as a contractor? Do you equip your front line (or actually any employee) to handle a situation when something comes up you didn’t plan on? I am confident that Genevieve’s hotel manager did not have a “what do we do when the keys are lost” drill. I’m quite certain the manager does have a customer service policy that says “Make a decision in the best interest of our customers and we’ll figure it out later!” He assuredly gives them the authority to make things happen, and in my case, it eased my mind completely. What happens when a routine plumbing install doesn’t go as planned? For instance, what happens when someone from your team steps through a ceiling or damages adjacent mechanical equipment? The truly impressive companies today have a system and policy in place to work through those opportunities when they occur, not if they occur. And I said correctly, opportunities not disasters. A real chance to show your customer whether you and your company have honest integrity to take care of them and own your own mistakes. A chance to build complete and total trust if handled respectfully and properly. Good companies actually plan on a problem arising, sort of like a fireman training for a house fire. They train to put out fires with an actual burning building, not just by reading a manual.
What can your team do to make that customer seem special? Make it a goal this year to do more than just what is on the proposal, make the customer feel like you are looking to serve them, not just make a profit. Then your customer will know that you and your company are going to do whatever is necessary to provide the best service and install the best products in their home or building. When you go the extra mile and deliver more than what they expected, most customers become raving life-long fans that tell others about your company. Your customers are your best marketing team if you please them. They tell neighbors, friends, and share it on social media like Facebook.
So sit down with the entire company and ask them how they can make customers feel better by doing business with your company. Don’t have time? You might want to make time because some of your competitors are doing that today. If not, your customer may simply decide to work with your competitor instead in the future. Or you may turn them into life-long partnerships that will make your business grow and keep your customers happy at the same time.