Private investment in single-family residential construction contracted in September as Treasury yields surged and the Federal Reserve raised its benchmark interest rate for the first time in three years, according to the latest government estimates.

Prospective home buyers have been dealing with the impacts of Trump administration tariffs and an Iran war now in its ninth month. They watched borrowing costs broadly increase across the U.S. economy, driving mortgage demand, home sales and builder sentiment lower in September.

The seasonally adjusted annual rate of new private single-family spending was approximately $403.4 billion, flat from August but about 2.4% lower than the $413.2 billion recorded a year ago, according to U.S. Census Bureau estimates published Monday.

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New single-family investments are down 4.8% year to date. Meanwhile, industry forecasts of average 30-year mortgage rates between 7% and 7.5% through the end of next year portend another challenging year for homebuying affordability and home building activity.

Private residential spending overall, which includes single- and multifamily investment, retreated nearly 9% from a year ago to a seasonally adjusted annual rate of $848.8 billion. That reflected a 5.5% drop from construction spending levels in August.

A steep decline in remodeling spending fueled what the National Association of Home Builders (NAHB) described as a “steep decline” in commentary published to its website on Monday.

“In contrast, improvement spending has been on an upward trend since 2023, supported in part by the aging housing stock and sustained demand for renovation,” noted Catherine Koh, an economist for the NAHB, adding that “the latest data is consistent with a 2026 soft patch for remodeling.”

Remodeling spending was 13% lower from August and down 18% from a year ago.

Home builder sales sentiment slid to 14-year lows in October, the trade group had previously reported, as projections for higher interest rates — and possibly multiple Fed rate hikes — weigh on forecasts for profitability and homebuying activity next year.

Meanwhile, new-home sales were down more than 5% year over year in September, according to Census Bureau data, and approximately 3% behind last year’s pace year to date.