The 2016 American Home Comfort Study An Overview Of Findings. Copyright 2017 Decision Analyst

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1 The 2016 American Home Comfort Study An Overview Of Findings 1

2 Meet Your Host S. Mark Teich Market Intelligence Specialist Since S. Mark joining Teich the is Decision currently Analyst a Market team Intelligence nearly 3 years Specialist ago as on a Decision Market Intelligence Analyst s Client Specialist, Service Mark team, has immersed managing himself projects for in a the number HVAC of industry clients and under focusing the tutelage on the of HVAC Garry Upton, industry. a renowned figure in the world of HVAC. With Garry's guidance, Mark Mark oversaw is the project the update manager and execution for the 2016 of our American premier Home HVAC Comfort industry Study study, (AHCS), the American which Home is a comprehensive Comfort Study. overview Mark of has the more state than of the two HVAC decades industry of experience from the perspective with market of research homeowners project across management. America who have recently purchased a new HVAC system for their homes in the two years prior to The 2016 AHCS combines trended data from the 2013 version of the AHCS and explores all aspects of the purchase process, as well as some ancillary issues, such as energy efficiency and home comfort. S. Mark Teich joined Decision Analyst in January 2014, when he began overseeing day-to-day operations of multiple studies. From project inception and design, to data collection through the reporting process, Mark provides keen insights into the market research process. Prior to joining Decision Analyst, Mark spent more than 20 years in various marketing research roles, where he managed research projects in diverse industries and across multiple media channels, including phone rooms, Internet, bulk mail, and on-site interceptions.

3 PRESENTATION INCLUSIONS United States Census 2002 American Home Comfort Encyclopedic Study 2015 HVAC Service Call Study 2013 & 2016 American Home Comfort Study Various Other Sources From The Public Domain

4 HOME OWNERSHIP Homeowners Represent 74 Million Out Of 117 Million Occupied Living Units In The U.S.

5 THE DOW JONES The Dow Jones Reveals: Wall Street Is Back

6 PRICE ESCALATION Price Escalation Holding New Housing Down? New Home Prices Have Again Expanded Rapidly. New home pricing trends by market tended to parallel the degree of recession by market. Will they again? Year Home Price + Difference 2000 = $207, = $213,200 = + $ 6, = $228,700 = + $15, = $246,300 = + $17, = $274,500 = + $28, = $297,000 = + $22, = $305,900 = + $ 8,900 Year Home Price + Difference 2009 = $270, = $272,900 = + $ 2, = $267,900 = - $ 5, = $292,200 = + $24, = $324,500 = + $32, % +31% 2014 = $345,800 = + $21, = $355,500 = + $ 9,700 New Home Price Trends Escalated Rapidly Just Prior To The Recent Recession. (Source: U.S. Census)

7 HOUSE PRICING VS. WAGES House Pricing And Wage Increases Are Out Of Line Jan 2006 Jan 2016 (Source: Realty Trac)

8 HOMEOWNERSHIP Homeownership (Our Market) Changes By CBSA (Source: Trulia.com)

9 HOUSE SIZE Houses Today Are Again Being Built For Greater Occupancy The size of new single-family homes is steadily increasing What A Fertile Field For Some Kind Of Zoning In These Homes! Average Size Of Recent HVAC Purchasers Home 2,104 Sq. Ft. (Source: National Association Of Home Builders)

10 HOMEOWNERS PROFILE The Majority Of Homeowners Are Older Tenure by Age of Householder Age Distribution Renter-Occupied Households Share Owner-Occupied Households Share Under 30 Years Old 9,609, % 2,857, % 30 to 44 Years Old 14,470, % 16,099, % 45 to 64 Years Old 12,986, % 33,117, % 65 Years and Older 6,108, % 22,009, % 74% Total 43,176, % 74,083, % Source: NMHC tabulations of 2014 American Community Survey. Updated 11/2015. Note: Does not include non-housing units. Homeowners Are Older

11 AHCS PARTICIPATION 2,486 participants in ,460 participants in 2013

12 Geothermal Heat Pump Owners Geothermal homeowners typically have newer equipment than the average homeowner. Geothermal homeowners are more likely to have purchased a home with a geothermal unit already installed. Average Age Equipment Total Average = 9.3 Years Geothermal Home Owners Average = 7.4 Years Unit was in home when home purchased Purchased Unit 26% 74% 38% 62%

13 HVAC PURCHASERS PROFILE Here Is What The Last Two Years Looked Like. How does this compare to your last two years?

14 HVAC PURCHASERS PROFILE Recent HVAC Purchasers Tend To Be Older Baby Millennials 19% 45 Or Older 61% Boomers Are Now 16% 21% 19% 23% 19% 52 to 70 3% Under age 25 Aged 25 to 34 Aged 35 to 44 Aged 45 to 54 Aged 55 to 64 Aged 65 and older

15 HVAC PURCHASERS PROFILE And Almost Half Are Affluent ($75K+/Yr) Household Income Of Recent HVAC Purchaser (2016) Under $25K 7% $25K to $34.9K 10% $35K to $49.9K 13% Average Income $79,300 $50K to $74.9K 25% $75K to $99.9K $100K to $149.9K $150K or more 8% 17% 20% 45%

16 HVAC PURCHASERS PROFILE Those planning on staying in their homes longer should be interested in long-term solutions Length Of Time Recent HVAC Purchasers Plan On Staying In Their Current Homes (2016) Candidates For Long-Term Solutions I plan to live in this home for more than 5 years I plan to retire in this home I'm retired, and this is my retirement home 17% 25% 23% 65% I'm not sure how long I plan to live in my current residence 21% I plan to live in this home for less than 5 years 14%

17 HVAC PURCHASERS PROFILE Homes And Homeowners Buying Replacement And Add On HVAC Equipment In 2016 Total Occupants Two Or Fewer = 52% Two Occupants 39% 13% One Occupant Average Home Size = 2,104 Square Feet

18 HVAC PURCHASERS PROFILE Additional Occupants Are Still Moving Into Homes (9% In 2016 Vs. 12% In 2013) Who Else Moved Into The Home In The Past 24 Months (2016 Vs. 2013) Adult child(ren) moved into the house in the past 24 months and plan(s) to stay temporarily Adult child(ren) moved into the house in the past 24 months and plan(s) to stay permanently Friend or relative (other than adult children or elderly parent(s) moved into the house and plans to stay permanently Elderly parent(s) moved into the house and plan(s) to stay permanently Friend or relative (other than adult children or elderly parents) moved into the house and plan(s) to stay temporarily Elderly parent(s) moved into the house and plan(s) to stay temporarily 3% 2% 1% 1% 1% 1% 2% 1% 2% <1% 6% 5%

19 HVAC PURCHASERS PROFILE What Products Will Sell To A Customer Who Is.. Most Recent Purchasers Are: Older Affluent Living In Homes With Fewer Occupants Planning On Staying In Home May Need To Be Prepared For Long Term Company Baby boomers own half of owned homes Six in 10 recent HVAC purchasers are older (45+) Almost half make $75K+ Twenty five percent make $100K+ Have two or less adults Have no children in the home Two-thirds plan on staying in their home long-term About 1 in 10 have begun sharing their homes with others

20 WHAT THEY PURCHASED So What Did They Buy? Central Air Conditioner Central Furnace 58% 61% 56% 53% Central Heat Pump 11% 15% HVAC PURCHASES 2016 & 2013 Ductless Mini-Split Central Boiler Geothermal Heat Pump 6% 4% 3% 2% 2% 3%

21 Geothermal Heat Pumps Replacement Most Purchases Of New Geothermal Units Were For Replacement Replacement Vs. Add-On For Geothermal Heat Pumps Replacement Vs. Add-On Percentage Of Recent Geothermal Heat Pump Buyers (2016) Geothermal Heat Pump Was Added On To Current Central System 9% 91% Geothermal Heat Pump Replaced Another Piece Of Equipment

22 SO HOW DO YOU REACH THEM? How Did The Homeowner Make Their HVAC Purchase Decision In The Past Two Years?

23 THEY OFTEN USED THE INTERNET Internet The Internet Has Become The Top Source For HVAC Information For Consumers. Do You Know How Your Customers Are Using The Internet In Their Purchase Process?

24 INFORMATION SOURCES TREND As Use Of the Internet Has Increase, Use Of Other Sources Of Information Has Declined Since % 52% 40% 7% % 43% 35% 10% % 21% 46% 24% Contractor Internet Friends, neighbors, co-workers Yellow Pages advertising

25 INTERNET USERS Contractors Become Less Important When The Internet Is Used Sources Used To Gather Information About Purchase By Internet Users Vs. Non-Internet Users (2016) Contractors 37% Contractors 55% Use The Internet, (n=1,297) Do Not Use The Internet, (n=1,189)

26 PLANNED HVAC PURCHASES The Internet Is The Top Source Of Information For Planned HVAC Purchases Top Sources Used To Gather Information About Purchase By Purchase Circumstance (2016) Internet 45% 57% Contractor 44% 48% Friends/Family/Neighbors/Co-Workers 37% 42% Emergency Purchase, (n=900) Planned Purchase, (n=1,547) Those who made an emergency purchase were more likely to rely on the contractor for information

27 PLANNED HVAC PURCHASES Those Who Made A Planned Purchase Are More Likely To Conduct Initial Research Initial Research Conducted By Type Of Purchase (2016) Did initial brand/contractor research prior to purchase (Net) 59% 64% 68% Did initial research on brands 32% 41% 47% Did initial research on contractors 30% 28% 32% Created list of contractors Created list of brands 14% 21% 19% 22% 19% 22% Total Recent Buyers (n=2,486) Emergency Purchase (n=900) Planned Purchase (n=1,547) Did not conduct initial research 36% 32% 41%

28 HOME VALUE Those With Higher-Valued Homes Are More Likely To Use The Internet Sources Used To Gather Information About Purchase By Home Value (2016) <$100K (n=358) $100K to <$150K (n=459) $150K to <$250K (n=826) $250K to <$300K (n=278) $300K+ (n=358) $100K To $300K+ 40% 51% 55% 54% 56% 45% 44% 43% 47% 48% 42% 40% 41% 40% 42% Internet Contractor Friends/Family/Neighbors/Co-Workers

29 DECISION-MAKING The Longer Consumers Spend Making The Decision, The More Important The Internet Becomes Sources Used To Gather Information About Purchase By Length Of Time To Make Purchase Decision (2016) Same Day (n=558) 2 to 7 Days (n=1,015) 1 to 2 Weeks (n=399) 2 to 3 Weeks (n=210) 3+ Weeks (n=216) 68% 71% 74% 54% 52% 47% 48% 43% 43% 43% 42% 53% 48% 25% 26% Internet Contractor Friends/Family/Feighbors/Co-Workers Those who made a same-day purchase were much more likely to rely on their contractors recommendations, while those who took longer were much more likely to use the Internet or friends, family, neighbors, or co-workers

30 BIDS Those Using The Internet Typically Obtained More Bids Number Of Bids Obtained From Contractors By Internet Users Vs. Non-Internet Users (2016) One bid 31% 66% Two bids Three bids Four bids Five or more bids 10% 7% 3% 4% 1% 20% 26% 31% Average # Of Bids: Use The Internet = 2.3 Do Not Use The Internet = 1.5 Use The Internet, (n=1,297) Do Not Use The Internet, (n=1,189)

31 EFFICIENCY LEVEL Those Who Purchased Higher-Efficiency Units Are More Likely To Use Internet Sources Used To Gather Information About Purchase By Unit Efficiency Level (2016) Internet Contractor Friends/Family/Neighbors/Co-Workers 41% 46% 45% 44% 38% 42% 35% 57% 53% Super-High Efficiency, (n=495) High Efficiency, (n=1,606) Standard Efficiency, (n=385)

32 R BRAND-FIRST BUYERS Brand-First Buyers Use The Internet Even More Than Contractor-First Buyers Sources Used To Gather Information About Purchase By Selected Brand Or Contractor First (2016) Internet 43% 77% Friends, Family, Neighbors, & Co-Workers 38% 46% Contractor 31% 54% Selected Brand First, (n=664) Selected Contractor First, (n=1,630)

33 INTERNET SOURCES Manufacturer Websites Are Important To Internet Users Sources Used To Gather Information About Purchase Websites Visited By Internet Users (2016) Manufacturers' websites Articles and information via search engine Internet review boards (free) Contractors' websites Energy/Utility companies' websites Internet review service (paid membership) Government agency websites (DoE, EPA, etc.) Social media sites (e.g, Facebook and Twitter) Consumer Reports Other Don't know 1% 1% 3% 9% 9% 20% 26% 32% 30% 46% 58%

34 WHAT AMERICA KNOWS Brand Awareness

35 UNAIDED AWARENESS Unaided Awareness Is Low For Most Brands Unaided Brand Awareness (2016 Vs. 2013) Trane 33% 41% Carrier 29% 28% Lennox 21% 26% Rheem 11% 14% GE 9% 7% Bryant 9% 8% Amana 8% 7% Goodman 8% 9% American Standard 6% 6% Frigidaire 5% 3% York 4% 6% Ruud 4% 5%

36 TOTAL AWARENESS Many Brands Are Not Well Remembered By Most Recent HVAC Purchasers TOP Trane 60% Bryant 28% Carrier 55% Coleman 24% Lennox 53% York 22% GE 50% Samsung 22% Honeywell 49% Bosch 21% Kenmore 46% Mitsubishi 20% Sears 45% Ruud 19% Whirlpool 41% Haier 19% Rheem 40% Comfort-Aire 18% Frigidaire 36% Panasonic 16% Maytag 34% Goodman 16% Westinghouse 33% Toshiba 15% Amana 33% Emerson 15% LG 32% Dyson 14% American Standard 32% Fedders 13%

37 RECENT BUYERS PERCEPTIONS Perceived Efficiency Levels

38 OVERALL EFFICIENCY LEVEL So, What Was The Efficiency Level Of The HVAC Equipment Recently Purchased? % 65% Super-High High Standard 16% 18% 20% 15%

39 EFFICIENCY LEVEL The HVAC System Efficiency Level Purchased Strongly Correlates To Size Of Home 2016 Up To 1,500 Sq. Ft. 15% 65% 21% 1,501 To 2,500 Sq. Ft. 19% 67% 15% BY HOUSE SIZE 2,501 To 3,500 Sq. Ft. More Than 3,500 Sq. Ft. 26% 30% 61% 54% 12% 16% Super-High High Standard

40 PERCEIVED HVAC EFFICIENCY Most Recent HVAC Purchasers Consider Their New Unit To Be A High Efficiency Unit Perceived Efficiency Level By Equipment Type (2016) Super-High Efficiency High Efficiency Standard Efficiency Total Average, (n=2,486) 20% 65% 15% Central Air Conditioner, (n=800) 16% 66% 18% Central Furnace, (n=1,154) 21% 65% 14% Central Heat Pump, (n=269) 18% 64% 18% Central Bolier, (n=85 ) 21% 59% 20% Geothermal Heat Pump, (n=54 ) 36% 56% 9% Ductless Mini-Split, (n=124) 30% 60% 10% Caution: Small base size (<100)

41 PERCEIVED HVAC EFFICIENCY There Seems To Be A Slight Shift Toward Higher Efficiency Units Perceived Efficiency Level By Type Of Purchase (2016 Vs. 2013) Super-High Efficiency High Efficiency Standard Efficiency 2016 Planned Purchase 22% 65% 14% Emergency Breakdown 17% 64% 19% 2013 Planned Purchase 17% 67% 16% Emergency Breakdown 14% 65% 20%

42 HOME S ENERGY EFFICIENCY Perception Of Home s Overall Energy Efficiency "5" (Very energy efficient) Rated "4" Rated "3" Rated "2" "1" (Not energy efficient) % Rated 4 Or 5 Home s Energy Efficiency Rating 59% 62% 13% 14% 46% 48%

43 EFFICIENCY SPENDING Amount Willing To Pay To Improve Efficiency By 25% Amount Willing To Pay $535 $

44 SATISFACTION Overall System Satisfaction 6% 5% 34% 4% 3% 20% 5% 4% 36% 11% 9% 42% Somewhat/Very Dissatisfied Neutral 56% 73% 55% 38% Somewhat Satisfied Very Satisfied Total Recent HVAC Buyers Super-High Efficiency High Efficiency Standard Efficiency

45 RECENT BUYERS PERCEPTIONS What About IAQ?

46 IAQ IN HOME Only 25% Of Recent HVAC Purchasers Rated Their Indoor Air Quality (IAQ) Moderate To Poor Rating Of IAQ In Home (2016 Vs. 2013) "5" High Quality Rated "4" Rated "3" Rated "2" "1" Poor Quality % 50% 23% 2% 25% Average Amount Willing To Spend To Improve Indoor Air Quality By 25% $381 (2016) 32% % 48% 28% 3% $363 (2013) 1% While fewer recent HVAC purchasers rated their IAQ moderate to poor, the average amount they were willing to spend to improve indoor air quality increased

47 INDOOR AIR QUALITY However, Most Homes Reported Having Some Type Of Indoor Air Contaminants Homes With Potential Contaminants (2016) Sources Of Potential IAQ Contaminants (2016) Pets 62% Household members with allergies 42% 83% High dust levels Household members with asthma Smokers in the household Household members with other respiratory conditions Mold Recent construction None of the above 24% 15% 13% 9% 8% 6% 17%

48 INDOOR AIR QUALITY Although Ratings For IAQ Are High, Most Want To Reduce Contaminants In Their Homes Importance Of Indoor Air Quality (IAQ) Elements Very/Somewhat Important Factors (2016) Reduce dust in my home Reduce airborne allergens Reduce viruses or bacteria inside my home Reduce mold and/or mildew Find a solution that will clean the air in the whole house instead of a single room Improve the home environment for a family member with allergies Reduce pet dander Exchange the air in my home with filtered outside-air at regular intervals Reduce cooking odors and other odors in my home Reduce volatile organic compounds Improve the home environment for a family member with asthma Reduce smoke in my home 32% 41% 78% 72% 70% 69% 65% 60% 56% 55% 53% 52%

49 RECENT BUYERS PERCEPTIONS Service Agreements?

50 SERVICE AGREEMENT About Half Of Recent HVAC Purchasers Bought A Service Agreement With Their New Unit Service Agreements Purchase & Payment (2016 Vs. 2013) Purchase Of Service Agreement Did get a service agreement Did not get a service agreement Don't know 11% 9% 49% 42% 40% 48% Purchase Of Service Agreement Service agreement was included in the price of the system Purchased service agreement for additional fee 18% 24% Don't know 2% 3% 80% 73%

51 SERVICE AGREEMENT INCLUSIONS Most Service Agreements Sold Included Only One Clean & Check Per Year Service Agreement Elements (2016 Vs. 2013) One clean & check per year 35% 47% Two clean & checks per year 41% 52% Discount on parts 24% 40% Discount on labor 24% 35% Preferential scheduling on emergency calls Other Don't know 3% 4% 5% 5% 21% 38%

52 SO WHAT S NEXT? What Other Service Providers Are Going Into These HVAC Purchasers Homes?

53 HOMEOWNERS PROFILE Had Home Service In The Home In Past 12 Months Homes With An HVAC Service Call Also Had These Services In Their Homes (2015) 33% 33% 30% 18% 13% Remodeling Plumbing Landscaping Pest Control Electrical Roofing Maid Service Home Security Windows/ Doors Energy Consultant IAQ Insulation Pool Maintenance Chimney Cleaning Home Automation 12% 12% 11% 10% 10% 7% 7% 7% 6% 5%

54 HOMEOWNERS PROFILE HVAC Service Contractor Also Provided The Following: Homeowners Knew Their HVAC Service Provider Also Provided These Services (2016) 16% 15% 13% 12% 12% Plumbing IAQ Energy Consulting Electrical Insulation Windows/Doors Home Automation Remodeling Roofing Home Security Chimney Cleaning 5% 4% 3% 2% 2% 2%

55 YOUR BUSINESS MODEL Which One Makes The Most Sense? HVAC PLUMBING ELECTRICAL? ONE HOME 4 SERVICES ONE SERVICE 4 HOMES

56 YOUR BUSINESS MODEL This One Seems To Make The Most Sense HVAC ELECTRICAL PLUMBING? The services you offer may be different than the ones chosen for this example The point is that in most markets, homeownership is not growing at a fast rate. If your business is based on a local market, adding services is one way you expand your chance for success 4 SERVICE 4 HOMES

57 EXTRA SERVICES WANTED (2015) Want Your HVAC Contractor To Provide These Services? (Yes!) There are many home services that an HVAC contractor can add without needing to sell many current HVAC customers on their pending addition. Total Service Agreement Total Service Agreement Energy Consulting 43% 46% Home Security 9% 13% IAQ 40% 43% Remodeling 7% 9% Electrician 27% 29% Roofing 7% 10% Insulation 24% 28% Pest Control 6% 11% Plumbing 22% 26% Maid Cleaning Service 5% 9% Home Automation 15% 18% Landscaping 5% 9% Chimney Cleaning 12% 15% Pool Maintenance 5% 7% Windows/Doors 11% 14% Total Households (n=510) Service Agreement Households (n=190)

58 In Summary 58

59 IN CONCLUSION Contractors need to play a consultative role

60 IN CONCLUSION Educate consumers about the additional benefits of energy efficiency, IAQ, and service agreements.

61 IN CONCLUSION The Internet has become the go-to source in the HVAC purchase process

62 IN CONCLUSION Expanded Services is what consumers want

63 Final Notes 63

64 AMERICAN HOME COMFORT STUDY The Source Of Information For The HVAC Industry Source: 2016 American Home Comfort Study

65 TOPICS COVERED New HVAC Buyers Profile What America Buys How America Buys Satisfaction Profile Homeowner Equipment Ownership Source: 2016 American Home Comfort Study

66 To Find Out More About The AHCS Report You can contact S. Mark Teich Decision Analyst s Market Intelligence Specialist in the HVAC industry mteich@decisionanalyst.com Tel.: Office location: Arlington, TX (USA) Methodology Decision Analyst s American Home Comfort Study is a survey of nearly 2,500 homeowners who purchased a new central HVAC system. The survey was conducted from January through March in 2016, and it utilized a nationally representative sample. More than 25,000 homeowners were asked screening questions to verify their recent purchase of a central HVAC system, and those who qualified were asked a battery of questions about purchases, home comfort satisfaction, energy efficiency, and homeowner attitudes and behaviors.