WASHINGTON (Reuters) -U.S. construction spending fell in July as high mortgage rates continued to constrain the housing market. 

The Commerce Department's Census Bureau said on Tuesday that construction spending slipped 0.1% after an unrevised 0.4% drop in June. The decline was in line with economists' expectations. Spending dropped 2.8% on a year-over-year basis in July.

Spending on private construction projects fell 0.2%. Investment in residential construction gained 0.1%, with outlays on new single-family housing projects nudging up 0.1%. 

Residential investment contracted in the second quarter at its fastest pace in 2-1/2 years. It is expected to decrease further in the third quarter, which would mark the third straight quarterly decline.

High mortgage rates have undercut the housing market. Though mortgage rates have eased from this year's lofty levels on expectations that the Federal Reserve would resume cutting interest rates in September, they remain elevated. A slowing labor market is also becoming a constraint for home sales. 

The inventory of completed new homes for sale was the highest in 16 years in July. Outlays on multi-family housing units dropped 0.4% in July. Investment in private nonresidential structures like offices and factories decreased 0.5%. Spending on nonresidential structures contracted in the April-June quarter for the second straight quarter.

Spending on public construction projects increased 0.3%. State and local government construction spending rose 0.1% while outlays on federal government projects increased 3.2%.