U.S. construction spending edges up in May as higher mortgage rates weigh on homebuilding

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U.S. construction spending rise May

Highlights

U.S. construction spending rises 0.1% in May after a revised 0.3% April gain, but falls 1.5% year on year.
Residential construction investment increases 0.3% in May driven by renovations, while new single-family housing spending slips 0.1% and drops 4.0% year on year.
Public construction spending grows 0.5%, with federal government outlays up 1.3%, offsetting flat private sector activity amid a 6.49% average 30-year mortgage rate.

May spending trends across housing and private projects

As reported by Reuters, the Commerce Department's Census Bureau says U.S. construction spending rises 0.1% in May after a downwardly revised 0.3% increase in April. Economists polled by Reuters had forecast a 0.1% gain, while construction spending falls 1.5% from a year earlier.

Spending on private construction projects is unchanged after rising 0.3% in the previous month. Investment in residential construction increases 0.3%, reflecting renovations, but spending on new single-family housing projects slips 0.1% and tumbles 4.0% year on year in May.

Spending on multi-family housing units, which account for a small share of the housing market, dips 0.1% in May. Investment in private nonresidential structures such as power plants and factories declines 0.3%, with spending on factory construction dropping 1.3% and outlays on power plants easing 0.1%, despite a surge in data center construction tied to artificial intelligence.

Mortgage pressure and public works offset

The U.S.-Israeli war with Iran boosts oil prices, pushing up inflation and mortgage rates and adding pressure to homebuilding. Data from mortgage finance agency Freddie Mac show the average rate on the 30-year fixed-rate mortgage has increased by about 50 basis points since the conflict starts at the end of February, and averages 6.49% last week.

Public construction spending increases 0.5% after a similar gain in April. State and local government construction spending rises 0.4% in May, while outlays on federal government projects jump 1.3%, likely boosted by detention center construction linked to an immigration crackdown.

A tax break for short-term rental real estate tied to the permanent bonus depreciation provision in President Trump’s “Big Beautiful Bill” has been drawing higher-income buyers toward vacation-rental purchases as a way to reduce taxes on salaried income, as we previously reported. Our earlier coverage explained that the strategy relies on cost-segregation and strict “material participation” requirements, and it comes with practical risks ranging from weak rental economics and high operating costs to potential audit exposure and tax recapture on sale.

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