One change in the tax laws in 1997 has led to this massive boom-bust cycle, I believe.
Before 1997 a person or couple either had to pay capital gains tax on profits from selling a primary residence, or roll over the profit into another house. Rolling over could be done repeatedly, deferring any tax. If the profit was rolled over, at age 55+ the person or couple could take a one-time exemption from tax of up to $125,000 when selling the home to downsize or live with other family members.
You got only one shot. Taking any part of that $125K exemption prevented you from using it again. If you were elderly and got only $50K tax-free during the sale, there was no way to recoup the other $75K. The law encouraged trading up as necessary for growing families, while allowing downsizing later in life without much penalty.
In 1997 the code was changed to exempt up to $250,000 per person or $500,000 per couple from capital gains tax during a sale of a primary residence. This exemption could apply as often as every two years, with no need to roll over the profit. You could simply take out the cash. This is the rule today. There are nuances, and the exemption is only for primary residences, not second or vacation homes. But the new law made house sales a bonanza for some people in the right parts of the country and the right market.
I'm convinced that this change led to massive speculation in housing by making "flipping" very easy, and has helped to drive up home prices beyond the reach of many. But as with the stock market, speculation has led to crazy cycles in the housing market and unwarranted appreciation in values that will eventually have to come down. The appreciation is just another form of inflation.
Inflation like this is "okay"—if you benefit from it. Most people don't. Mainly it's speculators who do. This is why rents, taxes, etc., have become unaffordable for the likes of younger people. I look at a house as a place to live, not as an investment instrument, but evidently I'm an exception. Enjoy the coming bust.