As the year kicks off to a mediocre start for housing, two camps have emerged: those who say trends indicate a sour turn for the housing market, and those who are more apt to dismiss the worst news as an effect of the last few months’ harsh weather. With major reports on construction and sales data on the way, Trulia chief economist Jed Kolko looked at historical patterns to determine—how much has the weather really influenced housing numbers?
Reasoning that “polar vortex” will be the first words on many commentators’ lips should the latest round of data prove disappointing, Kolko calculated the historical relationship between “abnormal” weather and monthly changes in five areas of housing activity: construction starts, permits, new home sales, existing-home sales, and pending home sales.
“Applying the historical patterns to last month’s actual temperature and precipitation shows that January weather probably contributed to a small decline in all five housing activities,” he said. “The January month-over-month housing data coming out in the next two weeks should be 1-2 percent lower than it would have been if last month’s weather had been in line with January norms.”
Kolko’s conclusion breaks down to three points:
- While last month was cold, it was only a few degrees below the historical norm in many areas around the country. “In fact, the Midwest had a slightly colder January in 2009, and the Northeast had colder Januaries in 2003, 2004, and 2009, too,” he said.
- Temperature isn’t the only factor to consider—precipitation affects housing activity, and all four of the country’s regions ranged from dry to normal throughout the month.
- The weather was harshest in the Midwest and the Northeast, the two regions that account for the smallest amount of housing activity, while the South and West remained relatively unaffected. “The impact of January’s weather on starts should be most negative in the Northeast and Midwest, so if starts decline most in the South and West, then weather’s not the culprit,” Kolko said.
Because of these factors, the economist says that while small declines in housing metrics may reflect the effects of winter storms, any losses beyond a few percentage points may indicate other factors at play.
“January’s polar vortex should knock construction and home sales activity down, but only by 1-2 percent,” he concluded. “If sales, starts, or permits drop by more than that, don’t just blame the weather.”