Mexico’s Construction Sector to Recover in 2026: BBVA

Mexico’s construction sector entered mid-2025 in contraction, with GDP down 1.1% year-on-year, according to the latest BBVA Research report “Real Estate Situation Mexico, 2H25.” The decline stems primarily from the civil works subsector, directly linked to a 12.6% real cut in public infrastructure spending compared to 2024. Despite these challenges, the sector is expected to recover in 2026.

Private building construction remains the sector’s main stabilizing force, growing 4.9% and accumulating 11 consecutive quarters of expansion, sustained by recovering bank credit and the resilience of residential construction.

However, this private-sector momentum has not been sufficient to offset the steep reduction in public investment, resulting in a 15.5% drop in total production value and a notable slowdown in employment generation.

A Two-Speed Sector

While the building segment continues to expand, the civil works segment has endured four consecutive quarters of decline, accumulating a 24.6% fall in 1H25. Employment dropped 4.7% (from 4.8 million to 4.6 million workers), and formal IMSS construction jobs fell from 1.9 million to 1.7 million. Meanwhile, construction input inflation exceeded 4%, driven mainly by cement and concrete price increases.

The value of infrastructure production also collapsed, down 32.1% year-on-year in June 2025 and 37.4% cumulatively in 1H25. The communications and transportation segment suffered the deepest losses, followed by hydraulic works with a 28.4% contraction and energy with a MX$10 billion (US$544 million) loss.

Overall, bank lending to construction remains stagnant, with development banks supplying 1.8% less and commercial banks 0.3% more. Yet, residential construction loans showed a 3.6% real increase, rising from MX$308 billion (US$16.79 billion) in June 2024 to MX$320 billion (US$17.41 billion) in June 2025, reflecting renewed activity among housing developers. This mild recovery is expected to continue as credit demand rebounds through 2026, especially if monetary easing and public-private housing initiatives take effect.

Housing: Contraction Amid Rising Prices and Weaker Affordability

According to the BBVA Research, Mexico’s housing market faces a significant contraction, driven by weaker mortgage origination and declining household purchasing power.

In 1H25, the total number of mortgages fell 9%, and total loan value decreased 4.5% year-on-year. Commercial banks issued 6.8% fewer mortgages for acquisition and reduced loan amounts by 10.3%, while Infonavit and FOVISSSTE also reported decreases.

The mortgage delinquency rate (IMOR) reached 3%, reflecting growing payment challenges among borrowers. Meanwhile, despite government announcements of 1.7 million housing units under new programs, RUV data show an 8.2% decline in new projects, while inventory grew 7.6%, the first increase in two years.

This dynamic is compounded by sustained home price appreciation of over 8% annually, far outpacing wage growth and worsening housing affordability. The market now faces a dual challenge: expanding sustainable access to mortgage credit and ensuring the supply of affordable housing, particularly within the social interest segment, where demand is strongest and financing weakest.

Regional Concentration and Inequality

The report underscores regional disparities in Mexico’s housing finance landscape. Major metropolitan areas — Mexico City, State of Mexico, Nuevo Leon, Jalisco, and Baja California — absorb over half of total mortgage financing, with the highest average loan amounts. By contrast, southern and southeastern states show marginal participation, both in the number and value of loans, reflecting limited access to credit and structural housing gaps.

This uneven distribution mirrors the geography of formal employment and income. Northern and Bajío states, supported by industrial clusters and nearshoring, show healthier credit portfolios, while southern regions face higher delinquency rates.

Housing prices continue to rise fastest in tourism hubs and northern states, while major metropolitan areas begin to stabilize.

Potential Demand: 7.5 Million Homes but Misaligned Supply

The report estimates a potential demand of 7.5 million homes in the coming years, with 41.6% representing traditional housing and 35.2% social interest housing. Most of this demand stems from low- and middle-income households, requiring affordable solutions and access to formal financing.

Yet, a large proportion of non-affiliated households remain excluded from financial systems. The demand is highly concentrated in six states, while southern regions have minimal participation underscoring a need to rebalance public housing policy toward underdeveloped local markets.

A clear mismatch persists between supply and demand: some high-demand states have few active projects and limited mortgage financing, while others with lower demand show signs of oversupply. Experts recommend realigning housing programs, expanding inclusive credit, and targeting new investments toward regions with unmet demand.

Public Works: High Spending, Uneven Impact

Between 2016 and 2025, Mexico allocated MX$8.7 trillion (US$474.18 billion) to public infrastructure, 76.7% to economic development (mainly energy), and 21.3% to social development. Despite this large investment, economic impact has been uneven and often limited. According to BBVA Research, only transportation projects show a statistically significant positive correlation with civil works GDP. Energy and hydraulic projects exhibit weaker or even negative relationships, suggesting inefficient allocation.

In the proposed 2026 budget, energy-related public works remain highly concentrated, with Tabasco, Campeche, and Veracruz receiving 78.8% of funds, about MX$279 billion (US$15.20 billion). Transportation works will account for roughly MX$200 billion (US$10.88 billion), primarily benefiting Mexico City, while hydraulic infrastructure is allotted just MX$20.8 billion (US$1.13 billion) about 10% of the transport budget.

This distribution implies that transport infrastructure will likely deliver the highest multiplier effect, prompting analysts to recommend redirecting public investment toward mobility, sustainable energy, and water supply projects with broader regional impact.

Outlook 2026

Despite its weakness, BBVA Research projects a gradual recovery in 2026, supported by three key drivers. First, the public infrastructure budget (PPEF 2026) is expected to increase by 8.6% in real terms, helping to reactivate stalled civil works projects. Second, the construction credit market is forecast to rebound after bottoming out in 2025, enabling greater liquidity for both developers and private builders. Third, a revival in residential building is anticipated, bolstered by the implementation of Mexico’s new national housing policy, which aims to expand access to affordable housing and stimulate regional development. 

If these factors materialize as projected, Mexico’s construction sector could return to positive GDP growth in 2026, partially reversing the downward trend and laying the groundwork for a more sustained and broad-based recovery.