The basic premise being that the US$ has gone up so much, so fast, as did US interest rates (as seen through government bonds). Both of these moving as much and as quickly as they did, had the effect of tightening up monetary conditions for businesses, exporters, consumers...everyone. Heck, The Federal Reserve Board may not need to raise rates as much as they thought because the market tightened up the system for them.
Today, we saw New Home Sales come out in the USA for the month of December. Wall Street economists were expecting to see 588,000 new homes sold. Unfortunately, the number came in at only 536,000 new homes sold. Fair bit below expectations. (The beauty of being an Economist/Phd is that you can be called a Doctor but if you are wrong, no one dies, and you go for lunch the same as you would have if you were right that day).
Why the miss on new home sales? I wonder if it has something to do with interest rates, which mortgage rates are based off of, having gone up so much, so fast the past three months?
Here is a chart plotting New Home Sales (white line and RHS) vs the 30yr US Fixed Rate Mortgage (yellow line and LHS). Note the red arrow on the left shows how Mortgage Rates rose in mid-2013 and the green arrow shows how New Home Sales dropped shortly thereafter. Cause and Effect.
And this past few months, you can see how Mortgage Rates climbed as shown by the dotted blue line on the far right. And the effect on New Home Sales which dropped just in December alone as shown by the dotted orange line.