New home sales declined in January on overall rising interest rates, but still posted a steady reading as demand remains strong.

Sales of newly built, single-family homes in January fell 4.5% to an 801,000 seasonally adjusted annual rate from a sharp upwardly revised reading in December, according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

“Demand is strong given a lack of existing home inventory,” said Jerry Konter, chairman of the National Association of Home Builders (NAHB) and a builder and developer from Savannah, Ga. “Builders are grappling with supply-chain issues that are extending construction times and increasing costs. Policymakers need to focus on alleviating production bottlenecks, particularly as it relates to lumber and other building materials.”

“New home prices continue to rise as the cost of materials increases,” said NAHB Chief Economist Robert Dietz. “Higher mortgage rates will slow home buying demand over the course of 2022, and the Russia-Ukraine crisis will add short-term volatility to the bond market.”

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 January reading of 801,000 units is the number of homes that would sell if this pace continued for the next 12 months.

New single-family home inventory was up 34.4% over last year, rising to a 6.1 months’ supply, with 406,000 available for sale. However, just 37,000 of those are completed and ready to occupy.

The median sales price rose to $423,300 in January from $395,500 in December, and is up more than 13% compared to a year ago, due primarily to higher development costs, including materials.

Regionally, new home sales fell in three regions, down 10.7% in the Northeast, 3.7% in the Midwest and 7.4% in the South. New home sales were up 1.2% in the West.