Construction spending slides 1.9% as mortgage rates weigh on homes

03 Nov 2026

Nine months into 2026, elevated mortgage rates have done more than slow home sales — they have begun to suppress the renovation market as well.

Construction spending fell 1.9% in September, nearly erasing August’s upwardly revised 2.0% gain, as materials costs and borrowing pressures weighed on residential outlays, the Commerce Department’s Census Bureau reported.

On a year-over-year basis, construction spending was down 2.7%, reflecting the cumulative toll of a rate environment that has shown little sign of easing.

The data underscored the widening gap between the segments of the construction market that remain active and those in retreat.

Private construction spending declined 2.4% in September after a 2.6% jump in August, with the residential segment absorbing the heaviest blow.

Investment in residential projects slumped 5.5%, a pullback economists attributed largely to weakness in renovation outlays, as higher mortgage rates continue to drag housing affordability lower and homeowners pull back on discretionary spending.

Renovation retreat signals broader residential stress

The renovation sector proved especially sensitive to rate pressure in September.

Outlays on single-family housing projects held flat month over month but remained 2.4% below the year-prior level, suggesting that affordability constraints are reshaping not just transaction volumes but how existing homeowners approach capital expenditure.

Spending on multifamily units edged up 0.1%, though the segment accounts for a modest share of total construction output.

Private nonresidential structures rose 1.1%, supported by a 1.2% gain in power plant investment, while public construction dipped 0.1% — state and local government outlays fell 0.3% as federal project spending jumped 2.5%.

War-driven rate surge dims broker pipeline

The residential pullback in the third quarter of 2026 traces directly to the mortgage rate surge triggered by the outbreak of the US-Israeli war with Iran in late February, which stoked inflation and pushed borrowing costs sharply higher.

Data from mortgage finance firm Freddie Mac show the average 30-year fixed-rate mortgage has climbed by at least 125 basis points since the conflict began, a move that has kept the U.S. housing market subdued through 2026 and compressed origination pipelines for mortgage brokers nationwide.

The September data points to a housing sector that has struggled to find footing throughout the year, as rate volatility has repeatedly undercut early-year momentum.