Affordability Gains Meet Rising Mill Costs: Q1 Buying Guide

Impact on Your Procurement Strategy

The latest data from Statistics Canada shows a 0.9% increase in the Industrial Product Price Index (IPPI) for November, marking the sixth consecutive monthly rise. For lumber buyers, this is a significant signal that the cost of production for Canadian mills—the primary suppliers of SPF—is trending steadily upward. When energy and petroleum are excluded, the index still rose 0.4% , indicating broad-based inflationary pressure across the manufacturing sector. Furthermore, the Raw Materials Price Index (RMPI) saw a staggering 19.0% year-over-year increase when excluding crude energy products. This suggests that the fundamental costs of harvesting and processing raw timber are not subsiding, which will inevitably put upward pressure on the break-even points for major Canadian producers.

On the demand side, the US Mortgage Application Payment Index (PAPI) fell to 149.6 in November, marking a 7.3% year-over-year improvement in homebuyer affordability. With the national median mortgage payment dropping to $2,034 , the financial barrier to entry for new homebuyers is lowering for the first time in several cycles. This improvement is driven by the fact that earnings growth is now outpacing mortgage payment increases. While the 25th percentile of mortgage payments (entry-level buyers) saw a slight uptick to $1,409 , the overall trend toward better affordability is a green light for the single-family housing market, which remains the largest consumer of dimensional lumber and wood panels.

The convergence of these two factors creates a strategic squeeze for procurement managers. On one hand, you are facing a supply chain where Canadian producers are grappling with their 14th consecutive annual increase in industrial prices, meaning they have little room to offer deep discounts. On the other hand, US consumers are finally finding the financial breathing room to enter the market, with mortgage rates forecast to stabilize around 6.4% throughout 2026. Even with a minor forecast dip in house prices of 0.3% , the volume of construction activity is expected to rise as pent-up demand is unleashed by more favorable financing conditions.

For those managing inventory for the 2026 building season, the wait and see approach is becoming increasingly risky. With lead times likely to stretch as the spring build cycle approaches and mill costs providing a firm floor for pricing, the current window represents a critical entry point. We recommend that buyers focus on securing 2x4 and 2x6 SPF and Hem-Fir stocks now. Geographic regions like the US South may see similar demand spikes for SYP as the affordability index improves nationwide. By locking in volume now, you hedge against the dual threat of rising mill input costs and a sudden surge in housing-start-driven demand that could deplete distributor inventories by late Q1.

Key Takeaways

• Canadian mill input costs rose 0.9% in November; expect mills to hold firm on asking prices to protect margins against 14 straight years of IPPI increases.

• US mortgage affordability improved 7.3% YoY ; rising buyer purchasing power will likely translate into higher housing starts and lumber demand by Q1 2026 .

• Mortgage rates are projected to hold at 6.4% through 2026; use this stability to plan long-term contract volumes rather than relying solely on the volatile spot market.

Market Outlook

Pricing Trend: UP

Confidence Level: HIGH

Recommended Action: Lock in 70-80% of Q1 SPF and SYP needs before mid-January to get ahead of the affordability-driven demand surge and rising Canadian production costs.

How LumberFlow Helps

Use LumberFlow's quote comparison dashboard to benchmark your current SPF offers against rising Canadian price indices. Our multi-supplier RFQ system ensures you find the most competitive pricing before Q1 demand peaks.

Ready to stay ahead of market trends? Book a consultation with our team to see how LumberFlow's procurement platform transforms dimensional lumber buying.