Canadians have increased their leverage substantially in recent years. The debt-to-GDP ratio gets a lot of attention, but it's actually not a very good metric of risk because you're measuring the total stock of debt to the total annual flow of income. It's better to look at debt service burdens.
When you look at the share of income going to service debt, you see that it has increased by about two percentage points. What's holding it down are the interest payments on debt, which have dropped to such low levels because of where interest rates are. That creates the vulnerability. What actually happens when interest rates head higher?
In my former life at the TD bank, we did a lot of stress-testing around the household balance sheets. What I can say is that if interest rates were to rise about two percentage points, probably about 8% to 10% of Canadian households would have a debt service ratio of more than 40% of their income. That's really where the alarm bells go off. This is where you have intense financial pressure.