US housing starts rose to 1.322 million in November, up from 1.246 million in the previous month.
This reflects a month-on-month increase in the annualised pace of new residential construction.
Housing Starts Signal Resilience
Looking back from our current date of February 18, 2026, the strong housing starts number from last November 2025 was an early signal of economic resilience. It showed us that the housing market had more momentum heading into the winter than many models had priced in. This underlying strength has continued to be a key theme shaping our view in the first quarter of this year.
This surprising economic durability is now being confirmed by more recent figures, like the January 2026 Consumer Price Index which came in hotter than expected at 3.1%. As a result, we are seeing the market aggressively reprice expectations for Federal Reserve interest rate cuts. The probability of a rate cut by June has fallen from over 70% at the start of the year to just under 40% today.
Given this, we are positioning for a “higher for longer” rate environment in the immediate weeks. This means considering short positions in interest rate futures, as we expect yields to remain elevated. Buying puts on Treasury bond ETFs would also be a logical hedge against the Fed maintaining its restrictive policy through the spring.
For the housing sector itself, continued demand suggests homebuilders can weather higher financing costs. We are looking at selling out-of-the-money puts on homebuilder ETFs, betting that the sector’s solid performance has built a strong support level. We saw a similar pattern back in 2023, when builder stocks rallied despite rising mortgage rates because of a persistent shortage of existing homes for sale.
Positioning For Rate Driven Volatility
This tension between a resilient economy and a hawkish Fed is creating uncertainty, which we believe will increase market volatility. We are therefore considering purchasing short-dated call options on the VIX ahead of the next FOMC meeting in March. This provides a cost-effective way to guard against any sharp market reaction to the Fed’s updated economic projections.
