Rising mortgage rates are hitting potential homebuyers hard, and that is taking steam out of the homebuilding market.

Builder sentiment in the market for newly built homes dropped 6 points to 50 in August, according to the National Association of Home Builders/Wells Fargo Housing Market Index. That is the first decline in seven months and the lowest level since May, when sentiment first rose out of negative territory. Anything over 50 is considered positive.

"Rising mortgage rates and high construction costs stemming from a dearth of construction workers, a lack of buildable lots and ongoing shortages of distribution transformers put a chill on builder sentiment in August," said Alicia Huey, NAHB chair and a homebuilder and developer from Birmingham, Alabama.

Mortgage rates are now holding solidly over 7%, hitting 7.24% on Monday, according to Mortgage News Daily. The average rate on the 30-year fixed loan rose over 7% in the last week of July.