Abstract
From 1975 to 1979 housing prices escalated sharply in response to heavy demand for housing as the adult population surged. Regionally, prices escalated first in the West, which had the fastest population growth. Housing prices were also pushed up by demand due to inflationary expectations. Large tax-free capital gains from price appreciation and lower real after-tax borrowing costs made housing a good buy. With continued increases in inflation, interest rates climbed ever higher, making ownership harder to afford. In 1981 inflation moderated somewhat, but interest rates kept on rising, which caused housing sales to decline sharply. The growth in housing prices has slowed now, and the market would be even worse were it not for creative financing. In the years ahead, high interest rates will cause people to defer buying homes. If interest rates drop due to an improved inflationary outlook, the housing market could make a comeback, but not a return to boom times.