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Surging real estate prices in Vancouver are pushing ownership costs into uncharted territory, putting it in the top ranks of the world's most expensive cities and triggering fears the market is poised for a fall.

Housing costs for the average two-storey home in Vancouver today eat up the equivalent of 80 per cent of a typical family's annual pretax income, according to new research, putting ownership out of reach for most.

The last time housing accounted for such a high percentage of household income in the city was in 2008, just before prices tumbled in a recessionary swoon. The city's real estate market has since recovered and gone on to set new records, but the recent climb has market watchers worried that the gains are unsustainable.

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Across the country, homeowners are putting a larger portion of their earnings toward their homes, and interest-rate increases are likely to put further pressure on homeowners in the coming months, the Royal Bank of Canada said in its quarterly affordability index.

The problem is especially pronounced in Vancouver, where the bank estimated families must now dedicate 72 per cent of their household income to pay the mortgage, property taxes and utilities on a bungalow. In Toronto, it would take 47.5 per cent.

With so much income tied to housing costs and some homeowners forced to take out home equity to cover living expenses or utilize other forms of credit, Royal Bank of Canada warned the Vancouver market is "becoming increasingly disconnected from local demand conditions and vulnerable to a painful correction."

"What's happened this year in British Columbia is puzzling," said Robert Hogue, an economist at the RBC. "The increases we are seeing just aren't justified by market fundamentals. I feel like this is something we have to flag."

The average home price in the Vancouver area was $622,991 in April. That's 5-per-cent higher than April, 2010, as the sale of multimillion-dollar homes boosted the average.

The city now has the third-highest housing costs in English-speaking cities worldwide, according to the Frontier Centre for Public Policy, with only Hong Kong and Sydney more expensive. That means people in Vancouver direct more of their money to housing costs than people in cities such as London or New York.

"This is money that households do not have for purchasing other goods and services, the result of which can be to diminish job creation and growth in commercial sectors, such as retailing," said Joel Kotkin, who authored the study for the organization.

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But even as economists worry, houses continue to sell briskly in the Vancouver area.

When Terry Vato listed a two-storey house in Burnaby late last month, he knew the sticker price would attract hundreds of prospective buyers.

At just under a million dollars, the 87-year-old, four-bedroom home was a bargain compared to houses 20 minutes away in Vancouver, the ReMax Central agent said. He was right. A week and one open house later, the property sold for $1.5-million - 50-per-cent more than the owners were asking.

"Some people hear this and say 'Wow, what a crazy price,'" he said. "But I think the new buyers will do very well in coming years. This area has been undervalued."

The bank's affordability index shows the proportion of median pre-tax household income required to pay the principal and interest on a mortgage, property taxes and utilities. The figures assume a 25-per-cent down payment and a 25-year loan at a five-year fixed rate.

Affordability had been improving in the previous two surveys, but prices posted strong gains at the start of the year. There are signs that things are cooling off, however.

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Sales decreased 14 per cent across the country in April, as new mortgage rules that eliminated 35-year amortizations as a financing option left buyers with the prospect of bigger payments. But the Canadian Real Estate Association said prices managed to eke out a small 0.3-per-cent gain compared to March, driving the national average resale price to a record $372,544.

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