Could air in the system cause this problem? Yes, it is. The water turbulence, is caused by a lack of backpressure. What type of heads do you have? Impacts? Could this be caused by a slow leaking head? Yes, it is being caused by water draining out of the zone. One that is lower than the other heads and the valve? Yes, that is how a siphon works, and drains a zone. You need to find out which head is failing to pop up. Some heads (impacts, and some rotors) allow more water to escape before they are fully extended. This means, that the zone then uses more flow, than available, and never developes enough back pressure to fully lift the heads and clear the air from the lines. I would replace all the heads on the zone first, after I was sure there are no leaks or defective heads. Second is the valve.

Something is restricting water flow through the valve. My first guess was the solenoid circuit (water portion not electrical) wasn't working. Shut off the water and open up the top portion of the valve. Look for holes in the diaphram. Make sure everything looks like it seals correctly and nothing is restricting the travel of the diaphram. I still think there is a relationship between the problem and you opening up the solenoid. There is a small discharge seat at the end of the plunger (you didn't say what brand valve you have). If there is debris in this opening it will restrict the valves ability to open. Do NOT damage the edge of the discharge seat. Remove the debris.

arazavi, In order to size a tankless heater you have to know (or approximate) the cold water inlet temperature... descriptions like "ice cold" and "very cold" aren't very useful to plug into a formula. Where I live I've measured it down to 33 degrees when it was -15 outside. A standard shower head is limited to 2.5 gal a minute. A top loading washing machine is 4+ gpm. You are using between 5 and 9 gpm. I was unable to find the "N-48M" heater that you described. Are you sure you didn't switch a couple of numbers? At any rate, a 200k btu/h heater will heat 8.5 gpm only 35 degrees. So, if you have 9 gpm you will be under that. At 5.5 gpm (two showers) it would heat 45 degree water to 105 degrees - which is the design temp for a shower. In other words, depending on your real cold water temps and the actual unit that you have, you may be undersized and causing the drop that you are speaking of. Remember, these units will throttle the hot water output if you exceed their capacity. Get back with better information and we may be able to figure this out.

L'Anda Johnson You are correct, there is something wrong from the street up to and including the PRV. So let's talk about odds - places to look: The most likely places for a restriction is someplace the pipe narrows down already. Those places would be: 1. The shutoff valve at the street 2. the shutoff valve before the PRV 3. The PRV Clearly you want to be sure that the valves are all the way open as Weedmeister suggested. You may want to close the valves you have access to and re-open them (again, only the valves upstream of where you measured your pressure). Sometimes if there's significant crud blocking the valve you will feel it as you close the valve. Closing the valve can sometimes break that up and cause the crud to flush through when you open it up. I know you want to rule out the PRV because you replaced it... but if the valves are open THE most likely place for this problem is at the PRV. More specifically, there is a screen on the PRV inlet that can get clogged from debris because this is a new line. Be sure to rule out the screen on the PRV - simply because that's the most likely source of the problem. You said that this was new construction. Was the water service line new (new development) or was there a house there previously and you re-used the water service line from the street? This is what a PRV screen looks like: