Sales of newly built homes in the U.S. fell 2.5 per cent from a year earlier to 697,000 in June, from a revised 715,000 in the previous month, according to data released by the Commerce Department on Wednesday.

The figure, which is seasonally adjusted, refers to how many homes would have been built over the year if builders had continued to build homes at the same rate each month.

The drop in sales exceeded Wall Street's expectations. Economists had predicted new home sales in June would total 725,000 units.

A sharp drop in home sales in the Midwest contributed to the drop in home sales.

Overall, new home sales have been higher because homebuilders are one of the few players providing inventory to homebuyers.

The data for May was revised sharply. new home sales for May were revised to 715,000 units versus the preliminary estimate of 763,000 units, an increase of 12.2%.

New home sales data fluctuate from month to month and are often revised.

Key Details The median sales price of new homes fell to $415,400 in June from $416,300 the previous month.

Over the past few months, new homes have been priced lower and lower, getting closer and closer to the median price of existing homes. In June, the median price of an existing home was $410,200, according to the National Association of Realtors.

The supply of new homes for sale fell 2.8 per cent between May and June, equivalent to a 7.4-month supply.

Regionally, the Northeast led the nation in new home sales, up 21 percent, but large declines in the Midwest and West dragged down overall sales.

Overall, new home sales are up 24 per cent compared to last year.

The Big Picture: New home sales slowed after a sharp increase last month.

A dearth of used-home sales has pushed many buyers into the new-home market, but high mortgage rates could dampen demand. With 30-year rates averaging 7 per cent ahead of the US Federal Reserve's meeting on Wednesday morning, the market widely expects the central bank to raise its benchmark rate again.

In an effort to maintain homebuyer interest in the face of high interest rates and deteriorating affordability, homebuilders are continuing to offer incentives.

Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets, wrote in a report that most of the spike in new-home sales in May has disappeared, and the numbers picked up slightly in June.