WASHINGTON, Sept 3 Reuters U.S. construction spending fell more than expected in July as higher mortgages and increased supply weighed on singlefamily homebuilding.

The Commerce Department39;s Census Bureau said on Tuesday that construction spending dropped 0.3 after being unchanged in June. Economists polled by Reuters had forecast construction spending dipping 0.1. Construction spending increased 6.7 yearonyear in July.

Spending on private construction projects decreased 0.4 in July. Investment in residential construction also fell 0.4.

Outlays on new singlefamily construction projects plunged 1.9. Spending on multifamily housing was unchanged. A surge in mortgage rates in the spring weighed on homebuilding and sales, leading to an inventory overhang in some regions.

The excess supply and weak demand has forced builders to hold back breaking ground on new projects. Singlefamily homebuilding dropped to a 16month low in July, with inventory near levels last seen in early 2008.

Residential investment, which includes homebuilding, contracted in the second quarter after doubledigit growth in the JanuaryMarch quarter. Mortgage rates have since dropped to 16month lows amid expectations the Federal Reserve will start cutting interest rates this month.

Spending on private nonresidential structures like factories dropped 0.4 as the boost from a drive by President Joe Biden39;s administration to bring semiconductor manufacturing back to the United States fades.

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