What is the "Trump risk" to Canada's economy and the lofty real estate markets in many big Canadian cities?
Royce Mendes, senior economist at Canadian Imperial Bank of Commerce, is one of many Bay Street players grappling with the question. Mr. Mendes recalls the uncertainty of U.S. election night, when he finally left CIBC's downtown office tower at 3 a.m. Financial markets have been weighing the impact of President Donald Trump's tweets and pronouncements ever since, he says.
The new U.S. administration's impact on the outlook for the Canadian economy is mixed: Alberta could receive a boost from Mr. Trump's stance in favour of pipelines, Mr. Mendes notes, but his protectionist impulses could put this country at a disadvantage.
"I don't think I've ever heard him say he would make Canada great again," Mr. Mendes told a recent gathering of Sotheby's International Realty Canada agents and clients.
The Bank of Canada, meanwhile, has its own aims: The central bank is warning Canadians that the housing market is a major risk, he points out, and policy makers would like to see the country's economy move away from debt-fuelled investment and real estate.
In 2015, housing accounted for one-fifth of Ontario's growth in gross domestic product and one-third of British Columbia's.
The economy hasn't been getting the help from exports that many economists expected to materialize with the decline of the Canadian dollar against the U.S. currency in the past couple of years, Mr. Mendes adds.
Even though the loonie has fallen, some other U.S. trading partners such as Brazil, Great Britain and Mexico, have seen steep depreciation in their own currencies, and they have been able to sell more to the United States as a result.
Mr. Mendes is forecasting that the dollar will fall to 72 cents (U.S.) by the third quarter from its recent level of about 77 cents.
Mr. Mendes acknowledges that it's difficult to forecast around "Trump risk" because of the contradictory signals coming out of the United States. But with threats of a border-tax adjustment and renegotiation of the North America free-trade agreement, there's a chance his 72-cent forecast will turn out to be too optimistic, he acknowledges.
Mr. Mendes figures that trade with Mexico and China will draw more of Mr. Trump's attention because of the U.S. trade deficits with those countries compared with Canada's more balanced trading relationship.
Some market watchers see it as a positive that Mr. Trump has revived plans for TransCanada Corp.'s Keystone XL Pipeline, which would run from Alberta's oil sands to Nebraska.
However, Mr. Trump's threats of tighter trade restrictions would push the U.S. dollar up.
"If he thickens borders in the United States, the U.S. dollar shoots up. He has to recognize that."
That in turn could do even more damage to the U.S. manufacturing sector, which has already been decimated by the strength of the U.S. dollar.
While speculation that the United States will cut taxes, boost spending and dismantle regulation has sent equity markets soaring to new records, Mr. Mendes says his forecast for U.S. economic growth moved up only by a barely perceptible amount.
For example, Mr. Trump is promising to bring back jobs to the United States but Mr. Mendes doubts that he will succeed.
"These policies sound great in theory but when we work them out, they don't actually translate into massive economic growth."
The United States central bank, the Federal Reserve, has already raised its key interest rate and forecasters expect more hikes. In Canada, many are expecting the central bank's next move will be down.
Mr. Mendes says rapidly rising rates would definitely be a risk to Canadian housing but he doesn't expect that to happen.
As for governments on this side of the border, they need the tax revenue generated by the housing market, so Mr. Mendes figures politicians will be careful not to tinker too much.
"When policy makers talk about cooling the housing market, they have to worry about cooling it too much."
Canada likely won't see higher short-term interest rates before 2018, Mr. Mendes says, and he is not alarmed by the overall indebtedness of the average Canadian.
Only a drastic hike in rates would cause severe pain, in his opinion.
A less dizzying climb in prices in the Toronto market would help, he adds, while markets in Calgary, St. John's and Vancouver have already cooled.
Mr. Mendes is not worried about the rapid rise in real estate prices in Toronto in the past couple of years because he says that employment has been strong in Ontario and lots of immigrants and migrants from Alberta have been settling in the Greater Toronto Area.
He adds that buyers who are looking for an increase in value from condo units should be cautious about purchasing now, but investors who simply want cash flow will find that this is a good time to be offering units for rent.
If fiscal easing in the United States drags up Canadian interest rates or the U.S. government takes a more aggressive trade stance, Mr. Mendes would be more pessimistic about the outlook for Canada.
"Those are macro-economic risks that would hurt the whole economy, not just housing."
In the market for single-family houses in the GTA, he still predicts price increases, but not at the same velocity as in recent years.
Mr. Mendes says Canadians are starting to take on too much debt but the level is still not as high as it was in the United States when their housing market slid into decline in 2008.
The Bank of Canada will be able to navigate the shifting landscape, he believes.
"I would put my faith in their getting it right."