I was at a convention party and having a cold beer with an old friend who is as connected to this industry as anyone I know, both through his big job and his involvement with industry associations. He’s a numbers guy but he thinks like a marketer. He’s also a very good listener.
“I have to ask you a question,” he said. “We’re missing 50,000 boilers and we can’t figure out where they went.”
“Missing from where?” I said.
“The traditional number that the American hydronic-heating market absorbs every year,” he said.
“Isn’t that usually 350,000?” I asked.
“It is, and it’s been that way for as long as I’ve been around,” he said. “That number represents all the boilers, both residential and commercial, but last year, we were missing 50,000 of them. That’s huge.”
We kicked this around for a while and grabbed another beer. Maybe people are keeping their thermostats down and the boilers aren’t running as much. Fuel is expensive nowadays. Or could it be that hydronics has suddenly lost a big part of its appeal? And if so, to what has it lost its appeal?
Could it be the recession? Plenty of people are out of work and don’t have the bucks to upgrade those old boilers. But that wouldn’t explain the boilers that would surely be replaced when they fail for good. As my father used to say, “People are always going to need heat, especially in the winter.”
“It’s a startling number,” my friend said. “And it’s not just the boilers; it’s also the controls, the circulators and every other OEM product that ships with a packaged boiler. We’re seeing corresponding drops in all of those numbers as well.”
We talked some more and then I had an idea that seemed to make sense. “I think it’s the foreclosures,” I said. “Think about it. There are currently 2 million homes on the banks’ books in some stage of foreclosure. How many of those are sitting empty across the U.S. right now? How many of them have boilers? And how many of those boilers are frozen or broken? Who’s going to notice that if no one is living in the house?”
My friend’s eyes lit up. “That makes sense,” he said. “Combine that with unemployment and people not having discretionary money to upgrade right now and that could explain it.”
“Push that forward a couple of years,” I said, “and think about what it means.”
When I got home, I looked up some statistics on foreclosures for last year. New Jersey, for example, was especially hard hit, and there are a lot of houses with boilers in New Jersey. One out of every 718 homes went through foreclosure in 2010. That placed the Garden State at No. 18 for all the states and the District of Columbia. If you factor in the statistics for unemployment and use of food stamps in New Jersey that state ranks No. 3 in the whole country. Only Idaho and Florida are in worse shape, but I don’t think there are many boilers in Idaho and Florida.
I looked further and found one of those national maps where they shade the states based on the foreclosure rate. The whole Northeast, the part of the U.S. that’s home to most of the boilers, was a shade of light- to darker green, meaning there were lots of empty houses.
I’m no economist, but I thought about this for days. Those foreclosed homes aren’t selling that well right now because our country’s unemployment rate is still too high. People just don’t have the cash, and they’re scared. There’s also talk now that the new American Dream doesn’t include owning a home. The young people are renting instead of buying.
But I’m thinking that there’s going to come a point where those homes will sell, whether to folks who plan to live there, or people who want to buy them as rental properties. I think when that happens, it’s going to be a glorious time to be a hydronic-heating contractor. Broken boilers and busted pipes are definitely not do-it-yourself projects, and winter never takes a vacation.
I read where the economists don’t expect new home building to start picking up until the end of 2012. They say that we first have to deplete this huge inventory of unsold, foreclosed houses, condos and apartments. As those homes sell, buyers are going to discover those unloved and abandoned boilers.
So here are some random thoughts for you to consider:
1.There’s a national election in 2012, which coincides with the economists’ prediction for the upswing in new-house construction. Usually, when an election arrives, the politicians in charge do their best to boost the economy, so 2012 being a better year makes sense to me.
2.Heating contractors in New Jersey will probably get very busy as those foreclosed homes start to sell during 2012.
3.So will the other contractors throughout the Northeast.
4.The people who buy foreclosed homes often do so to flip them, or rent them, and that means that they’re probably going to be pinching pennies, so . . .
5.The new boilers that will replace the old boilers in the foreclosed homes will probably be those boilers that sell for the least amount of money because penny-pinching buyers are not thinking long term, or . . .
6.The people buying the foreclosures are buying them to live there, and they’re also trying to save a buck, so . . .
7.The new boilers that go into the foreclosed homes will probably be those boilers that sell for the least amount of money, and …
8.If I were in the boiler business I’d start thinking about marketing a basic, bare-bones boiler for this new market because I think that the folks who buy foreclosed homes are probably not that concerned about squeezing a few more points out of combustion efficiency. They’re just looking to get a good deal on a house.
9.Regardless of the price of the boiler, the circulators and controls will also ride along, and that’s going to be a boom for the manufacturers who make basic circulators and controls. And note that I said basic. This won’t be a market for high-tech stuff.
10.When this happens, there’s probably going to be this surge in the overall number of boilers sold. The market will be playing catch-up. This will give the folks who watch the numbers for the hydronic-heating business heart palpitations. They’ll get excited that they’ll start to think that hydronics has finally busted out of its traditional, back-seat position in the U.S. heating market. It won’t be a real number in terms of public acceptance of hydronics, but it’s liable to be enough of a shock to the manufacturers that they’ll begin to think that what the public wants is basic, not high-tech, and that’s going to be interesting to watch because Europe will be going in the opposite direction - that being even higher-tech. Europe has laws that demand this. We don’t.
11.On the other hand, maybe the buyers of the foreclosures will abandon the boilers and install furnaces in their place. After all, everyone wants air-conditioning, right?
Interesting times ahead, eh?
