How to stop birds from pecking knot hole to build a nest.

How about hanging some of that florescent flagging tape strips say 6" from the eves/soffits so it blows in the wind. Birds are usually frightened by this.

Hi Patty, So what type of bird is this that is pecking at the knot hole?

...First, it's important to understand what you can not do to eliminate problem birds. Federal and state laws protect all wild birds (except English sparrows, pigeons and starlings). These laws strictly prohibit individuals from killing, trapping or tampering with the nests of protected species without special permits. This leaves you with only three options: you can erect barriers and guards on and around your home, you can scare the birds away or you can tempt them to move. ..."

http://www.nytimes.com/1996/06/30/nyregion/strategies-to-outsmart-pesky-birds.html

old CDs make great flash tape to scare away birds and look perty cool hanging in tree

We used windchimes, and a special caulk made for that purpose and it worked. I'll see if I can find it online.

It may have been this:

https://www.amazon.com/Tanglefoot-300000703-Bird-Repellent-Caulking/dp/B000BOC4MW

Here is amother type:

https://www.amazon.com/Bird-X-Bird-Proof-Repellent-Trial-Tubes/dp/B000MXJH72/ref=pd_cp_86_2/139-5300902-5596860?_encoding=UTF8&pd_rd_i=B000MXJH72&pd_rd_r=MJ2HP44FJF10R5E1BXHQ&pd_rd_w=jTYrY&pd_rd_wg=DpBDd&psc=1&refRID=MJ2HP44FJF10R5E1BXHQ