MONCTON, N.B. – Truckers in Canada should begin seeing some improvement on freight volumes in 2011, unless – and it’s a big one — the escalating foreclosure scandal in the U.S. further sinks an already very brittle housing sector, says BMO Capital Markets senior economist Earl Sweet.

If it plays out that way, then "all bets are off" in averting a double dip recession in the U.S., which, of course, would deeply affect Canadian cross-border haulers and our export-based economy in general, Sweet told member carriers at the Atlantic Provinces Trucking Association in Moncton.

The Canadian economy has slowed after a brief spring-summer spike. But the dreaded double dip didn’t seem likely as long as the U.S., while sputtering along, kept its balance.

The emerging real estate crisis now throws that into question. At the very least, it could undermine an already bleak outlook for recovery.

The U.S. real estate industry – Ground Zero of the economic collapse in late 2008 – was shaken up again this week when regulatory officials in all 50 states launched investigations into possible wide-scale illegal practices by mortgage providers foreclosing on homes.

The scandal sparked calls by lawmakers for a nation-wide moratorium on foreclosures while some of the biggest lenders like JPMorgan and Bank of America have suspended foreclosures in many parts of the U.S.

The latest US housing crisis in the U.S.
could sinks hopes that a significant
economic boost was on its way

Up to 9 million mortgages could face legal challenges. Even non-delinquent homeowners could see the value of their own property continue to crater as neighboring homes remain vacant longer, further eroding equity.

If prolonged, the situation could further restrain bank capital and lending, which, most economists agree, are crucial for igniting significant recovery.

"As if we needed another downside risk to our forecasts," says Sweet, who stresses that at this point a double dip recession isn’t part of BMO’s baseline forecast. However, "if the foreclosure problems don’t get dealt with it’s going to weigh heavily on the economy."

"The risk of housing prices going down again will put pressure on household wealth and threaten another downturn."

What does that mean for markets north of the border? Well, even though Canada has been able to modestly diversify its international customer base in recent years thanks to strong commodity prices, our economy for the most part is still "locked at the hip" with the U.S.

As goes real estate value and equity, consumer confidence follows. That, says Sweet, is bad news for southbound truck lanes that started to show signs of life this year – mainly in the spot market, although it’s expected that some of that would eventually get built into contracts as capacity tightens.

There are a couple of other potential, "medium-risk" pitfalls Sweet warned carriers about:

The near-par Canadian loonie needs to be monitored that it doesn’t overshoot commodity prices.

As well, the fiscal stimulus – "behind much of Canada’s recovery," says Sweet – is about to run its course; so it remains to be seen whether trucking will face headwinds as a result.

Luckily, though, Canada’s fundamentals remain "rock solid" — or at least a lot stronger than the U.S., says Sweet.

"Canadian banks, which never really gambled on the sub-prime mortgage game, remain in good shape to finance recovery."

As well, household debt-to-income ratios are well below U.S. levels and consumer confidence is "underpinned by a strong mortgage situation."