Signs of a Turnaround: What 2026 Holds for the HVAC Construction Market

After several years of turbulence in construction and housing, the HVACR industry is entering mid-2026 with signs of stabilisation — even if a full rebound remains out of reach. Residential HVAC demand continues to be driven primarily by service and replacement work, while non-residential opportunities are increasingly shaped by public-sector investment and the rapid build-out of data centres. Yet for contractors, conditions remain fragile.

The Residential Story: Service and Replacement, Not New Construction

Tim Fisher of HARDI clarified a point that residential contractors already know but that is frequently misunderstood in broader industry commentary: 'Over 90% of homes have an installed AC or heat pump system, but service and replacement activity is what drives the market.'

New construction historically represents only 20 to 25 percent of residential air conditioning demand. The 75 to 80 percent that comes from replacement and service is what residential HVAC contractors actually depend on — and that demand is driven by system age, failure events, and the consumer deferral dynamic that DuraPlas's 2026 homeowner data confirmed is currently elevated.

This means the residential HVAC market's performance is less dependent on housing starts than news coverage typically suggests. A slow housing market reduces the 20 to 25 percent new construction slice but leaves the 75 to 80 percent replacement and service slice largely intact — moderated by the deferral dynamics of price and consumer confidence, not by housing construction pace.

HARDI market intelligence director Tim Fisher's assessment that service and replacement drives 75-80% of residential HVAC demand — with new construction representing only 20-25% — clarifies that the residential HVAC market is primarily a service and replacement business whose health depends on system age, failure rates, and consumer willingness to replace, not on housing start volume.

The Interest Rate and Recovery Expectation

ACHR News's April 2026 analysis specifically cited interest rate expectations as a key variable for HVAC recovery:

• Lower rates revive residential upgrades: Homeowners who deferred replacement because of elevated financing costs are more likely to proceed as financing becomes more affordable. The 34 percent consumer deferral rate documented by ServiceTitan's 2026 data is partly a function of financing cost — lower rates directly address this deferral factor.

• Large mechanical projects unlock: Commercial and institutional HVAC projects with significant capital requirements — hospital expansions, university facility renovations, large commercial buildings — are sensitive to borrowing costs. As rates decline, these projects move from planning to execution.

• The follow-inflation-follow-unemployment framework: As one industry commentator noted, watching the Fed's dual mandate signals provides the clearest early indicator of rate trajectory — and therefore of when the residential HVAC recovery accelerates.

The Non-Residential Bright Spots

While residential remains constrained, non-residential HVAC demand is being shaped by two structural drivers that are independent of housing and consumer sentiment:

• Public sector investment: Federal infrastructure spending, CHIPS Act manufacturing investment, healthcare construction, and education facility renovation are creating above-average commercial HVAC demand in specific market segments and geographies.

• Data centre build-out: As Trane's record $10.7 billion backlog and Carrier's 500 percent data centre order growth both confirm, AI infrastructure investment is generating extraordinary commercial HVAC demand that shows no signs of near-term deceleration.

Frequently Asked Questions

Is the HVAC construction market recovering in 2026?

The HVAC construction market is showing signs of stabilisation in 2026 rather than full recovery. Residential demand is stabilising at approximately 7 to 7.5 million annual units versus the historical 9 million pace. Commercial is significantly outperforming residential, driven by data centre construction, healthcare expansion, and public sector investment. A more complete residential recovery is projected for 2027 as deferred replacements force market re-entry and interest rates stabilise.

What drives residential HVAC demand?

According to HARDI market intelligence director Tim Fisher, more than 90% of homes have an installed AC or heat pump, meaning service and replacement activity drives 75-80% of residential HVAC demand. New construction represents only 20-25%. This means residential HVAC demand depends primarily on system age, failure rates, and consumer willingness to replace — not on housing start volume.