CMHC and Genworth did a number of studies to stress test the market and they are definitely keeping an eye on it when insuring mortgages (hence Flaherty raising qualification to 5 year rates). Affordability is still low and even rates of 7% would not make affordability as bad at was in 1989-1991.
I think people should consider consumer behavior and substitution effects as it pertains to condos. I'm seeing 1+dens going for $400k in the core that are under700 sq ft, though two income earners can afford it, will they buy it? The monthly to support a condo at that size and price will get you a whole lot of house still outside downtown Toronto (and still in the 416).
Will there come a time when people will say, I'd love to live downtown...but at that price, I think i'm going to buy a house farther out instead.?
Once a lot of people start doing that, small decline in terms of percentages will mean large losses for investors because they have to carry a negatively cashflowing property (if they put 20% down minimum) that is worth less than what they bought it for.

How about a 10% interest rate in about 5 years, would that spoke anyone?

I don't think rates will ever hit 10% as it would crush the economy as a whole.....
What I do think is that rates will hit 6% again, which will have a huge impact on many people that picked up variable mortgages a couple of years ago. Effective interest rates will double and cause a lot of financial strain on families that took on too much mortgage debt then they should have. That fact, along with the market slowing down with the rising rates, overbuilding in the city and decreased investment from outside the country are going to cause some problems down the road.
We may not have a financial crises in Canada, but our lack of one has caused other issues that we'll have to contend with shortly.
I'm a real estate agent, and my business is dependant on the markets....but we also need to be realistic in our views.

Mike