WASHINGTON U.S. construction spending increased solidly in July as a shortage of houses on the market boosted outlays on single-family housing projects.

The Commerce Department said on Friday that construction spending rose 0.7%. Data for June was revised slightly higher to show construction spending increasing 0.6% instead of 0.5% as previously reported. Economists polled by Reuters had forecast construction spending increasing 0.5%.

Construction spending increased 5.5% on a year-on-year basis in July. Spending on private construction projects rose 1.0%, with investment in residential construction advancing 1.4% after increasing 1.5% in the prior month. Private construction spending rose 0.6% in June.

Spending on single-family housing projects surged 2.8% in July. An acute shortage of homes available for sale is driving construction, though higher mortgage rates could stifle activity.

The rate on popular 30-year fixed mortgage is above 7.0%, according to data from mortgage finance agency Freddie Mac.

The construction spending report showed outlays on multifamily housing projects gained 0.2% in July. There is limited room for further gains as the stock of multifamily housing under construction is at a record high.

Spending on private non-residential structures like factories rose 0.5% in July. Spending on manufacturing construction projects accelerated 1.1%. Efforts by President Joe Biden's administration to bring semiconductor manufacturing back to the United States are boosting factory construction.

Spending on public construction projects fell 0.4% after gaining 0.6% in June. State and local government spending dipped 0.1% while outlays on federal government projects dropped 3.6%.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)