Got the same chart adjusting for square footage size and interest rates (which affect the cost of the mortgage)? A person whom in 1980s could afford a 1200 mortgage can now afford twice the paper price of the house because of much lower interest rates.
The bubble starts in 1997 on the chart. The prime rate in Jan 97 was 8.25%. The prime rate now is 7.50%. It's not low interest rates that caused the bubble in McMansion building. It's these interest-only and teaser-rate ARM loans and two-income households buying a house that they can afford only as long as both are working. One loses their job, gets ill, gets pregnant, for some other reason has to quit work, or their teaser-rate ARM resets, then they can no longer make the payments.