New home sales fell 8.1% last month to a seasonally adjusted annual rate of 590,000 units, the lowest since April 2020, the Commerce Department said on Tuesday. May’s sales pace slowed to 642,000 units from the previously reported 696,000 units. Sales fell in the Northeast, West and populous South, but rose in the Midwest.

Economists polled by Reuters had forecast that new home sales, which make up a portion of U.S. home sales, would fall to a percentage of 660,000 units.

Sales in May fell 17.4% year-on-year. They reached 993,000 units in January 2021, the highest level since late 2006.

According to data from mortgage financing company Freddie Mac, the average contract rate on a 30-year fixed-rate mortgage is 5.54%. Interest rates have risen more than 200 basis points since January as inflation rose sharply and the Federal Reserve aggressively tightened monetary policy.

The US Federal Reserve is expected to raise its key rate by another 75 basis points on Wednesday. This would bring the total rate hike to 225 basis points since March.

The housing market is one of the most sensitive sectors to interest rates. Last week’s data showed property sales fell for the fifth straight month in June. Building permits fell further after housing starts last month, but a severe housing shortage is unlikely to cause a decline.

Weakening demand will help realign supply and demand in the housing market and moderate inflation.

The median new home price rose 7.4% in June from $402,400 a year ago. There were 457,000 new homes on the market at the end of last month, up from 447,000 units in May.

Under-construction houses accounted for about 67.0% of the stock, while under-construction houses accounted for about 24.1%. At June’s sales pace, it took 9.3 months to clear the home supply from the market, up from 8.4 months in May.