We monitor the evolution of these vulnerabilities and apply extreme risk scenarios to look at the potential implications for the financial system and the economy should such a shock occur. The main vulnerabilities that we see today are the same as those in the 2018 FSR—elevated levels of household debt and imbalances in housing markets. Both vulnerabilities have declined modestly over the past year.
With respect to household indebtedness, the mortgage stress tests introduced last year have improved the quality of new mortgage lending. As a result, the share of new mortgages going to highly indebted households—those that owe more than 450 per cent of their income—has declined significantly. Also, the number of Canadians falling behind on their debt payments remains low.