New U.S. construction data is adding to concerns that the housing market is still struggling to find a stable footing in 2026. Construction spending unexpectedly declined in January, underscoring the pressure that higher mortgage rates, rising building costs, and slower housing activity are putting on the broader real estate market.
January Construction Spending Misses Expectations
According to new Commerce Department data reported by Reuters, total U.S. construction spending fell 0.3% in January, a disappointing result for an industry that had been expected to post a small gain. Economists had forecast a 0.1% increase, so the decline came as a surprise. It followed a stronger 0.8% rise in December, which had been the biggest monthly increase since April 2024.
Even with the monthly drop, total construction spending was still 1.0% higher than a year earlier, which shows the sector is not collapsing, but it is clearly under pressure.
Residential Construction Takes a Hit
The housing side of the market was one of the weakest areas in the report. Reuters said residential construction fell 0.8% in January, reflecting softer activity across homebuilding. New single-family construction slipped 0.2%, a sign that builders are still pulling back as affordability remains strained and buyer demand stays uneven.
That weakness lines up with other recent housing data. Reuters previously reported that new home sales plunged 17.6% in January to the lowest level since October 2022, showing that many buyers are still stepping back in the face of high borrowing costs and broader uncertainty.
Higher Mortgage Rates Are Still a Major Problem
One of the biggest reasons construction is softening is that financing conditions remain difficult. Mortgage rates dipped briefly earlier this year, but that relief was short-lived. Reuters noted that the average 30-year fixed mortgage rate had fallen to 5.98%, only to climb back to 6.22% as oil prices rose and Treasury yields moved higher amid the conflict involving Iran.
For builders, higher mortgage rates make it harder to attract buyers. For buyers, they make already-expensive homes even less affordable. That combination is slowing new projects and weakening demand at the same time.
Rising Costs Are Pressuring Builders Too
Mortgage rates are not the only headwind. Builders are also dealing with higher material and labor costs, which continue to weigh on development activity. Reuters said import tariffs and the administration’s immigration crackdown have added to pressure on construction costs by raising material expenses and contributing to labor shortages.
Those issues have made it harder for builders to increase supply, especially in the single-family market, where affordability is already under strain. That helps explain why homebuilding has remained subdued even though the U.S. still faces a significant housing shortage. Reuters reported earlier this month that housing starts totaled about 943,000 units in 2025, down from 1.016 million in 2024.
Private Construction Was the Main Weak Spot
The broader construction report showed that the January decline was driven mainly by the private sector. Reuters said private construction fell 0.6%, while spending on private nonresidential structures also slipped. Nonresidential construction has now declined for eight straight quarters, even as areas like data-center development continue to attract investment.
That suggests the slowdown is not limited to housing alone. Higher financing costs and economic uncertainty are affecting multiple parts of the construction industry.
Public Construction Offered Some Support
One brighter spot in the report was public construction. Reuters said spending on state and local government projects rose 0.6%, while federal construction increased 1.0%. That public-sector strength helped offset some of the weakness in private building, though not enough to keep total construction spending from falling overall.
What This Means for the Housing Market
For the housing market, the January construction report is another sign that conditions remain fragile. Builders are still cautious, buyers are still payment-sensitive, and the combination of higher mortgage rates and rising costs is making it difficult for housing activity to gain momentum.
The bigger concern is that slower residential construction could keep the supply shortage in place even longer. If builders continue pulling back while demand stays constrained by affordability, the market may remain stuck in the same pattern that has defined much of the past two years: limited inventory, high prices, and uneven sales activity.
