Many housing optimists recently celebrated the 4.5% rebound in housing starts. Can we make any positive conclusions from this number?

First, we should recall that the housing starts number is seasonally adjusted. The raw number tells us that the housing starts declined 2% from 115k to 112.5k.

Second, we should study if the applied seasonal adjustment could be trusted. Freddie Mac will help us:

housing starts seasonality

The average change of housing starts during winter months is 9%. Freddy Mac says:

Thus, abnormally mild weather in, say, January could accelerate builders production schedules, leading to a large reported increase in starts during January followed by a large drop in February. Conversely, severe January weather could show the inverse pattern as builders accelerate February construction to get back on schedule.

Was the December abnormally warm this time? Will the February be abnormally cold?

The conclusion is simple – the reported December increase in housing starts is simply incorrect. It will be more than compensated by huge drop in February. I’m posting this to warn you to be prepared to February housing meltdown, because it is coming