Sales of previously owned homes in the U.S. fell in May as higher mortgage rates sapped demand, showed a U.S. Commerce Department report released on Tuesday.

Resales declined 1.2% to an annual rate of 6.67 million from 6.75 million in April, according to the National Association of Realtors. Meanwhile, the supply of homes for sale rose to the highest since May 1997.

Housing will pare economic growth this year as buyers are deterred by the highest mortgage rates since 2002, economists say. However, an unexpected increase in sales of new homes reported by the U.S. Commerce Department on Monday confirms U.S. Federal Reserve Board predictions that the slowdown will be gradual.

Sales of new homes last month rose 4.6% to the highest level this year as builders offered incentives, such as free golf course memberships, to reduce inventories, Monday’s report showed. However, private sellers of existing homes don’t have that option.

Before the May report, existing home sales fell in all but four months since May 2005. Existing home sales account for about 85% of the housing market and are recorded when a contract is closed.

The supply of homes rose 5.5% to 3.6 million, bringing inventories up to 6.5 months’ worth at the end of May.

The median price of an existing home rose 6% in May from a year earlier to $230,000. Resales of single-family homes fell 1.5% to an annual rate of 5.82 million. Sales of condos and co-ops rose 1.9% to an 852,000 rate.

Purchases fell 4.2% in the Northeast to 1.13 million and fell 3.8% in the Midwest. They rose 0.4% in the South and rose 0.7% in the West.

Buyers are being discouraged by 30-year mortgage rates that rose to 6.71% last week, the highest since May 2002. Borrowing costs are on the rise as the Fed this week prepares to increase interest rates for a 17th straight time.