Rising mortgage rates and elevated construction costs put a damper on new home sales last month.

Sales of newly built, single-family homes in June fell 2.5% to 697,000 seasonally adjusted annual rate from a downwardly revised reading in May, according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. However, new home sales are up 23.8% from a year ago.

“Rising mortgage rates in June, coupled with elevated construction costs and supply chain issues for electrical transformers, acted as headwinds on the new home sales market,” said Alicia Huey, chairman of the National Association of Home Builders (NAHB) and a custom home builder and developer from Birmingham, Ala.

“Demand for new homes cooled in June primarily due to a more than quarter-point rise in mortgage rates over the previous month,” said Danushka Nanayakkara-Skillington, NAHB’s assistant vice president for forecasting and analysis. “However, the lack of existing inventory and the Federal Reserve nearing the end of its rate hikes signal that demand for new homes may rise in the coming quarters.”

A new home sale occurs when a sales contract is signed or a deposit is accepted. The home can be in any stage of construction: not yet started, under construction or completed. In addition to adjusting for seasonal effects, the June reading of 697,000 units is the number of homes that would sell if this pace continued for the next 12 months.

New single-family home inventory in June was 432,000, down 3.6% compared to a year ago. This represents a 7.4 months’ supply at the current building pace. A measure near a 6 months’ supply is considered balanced. Of that total inventory, 67,000 were completed, ready-to-occupy homes, up 91.4% from a year ago; however, that inventory type remains just 15% of total inventory.

The median new home sale price in June was $415,400, down roughly 4% compared to a year ago.

Regionally, on a year-to-date basis, new home sales are up 4.7% in the Northeast and 3.2% in the South. New home sales are down 7.6% in the Midwest and 16.5% in the affordability-challenged West.