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The twentieth century saw a lot of great Catholic literature. Flannery O'Connor and Walker Percy are the most-immediate examples, but there are others, like Sheila Bosworth and Shusako Endo.

Did it disappear after 1980s?

I'm afraid it did, at least as a literary form that had mass-market appeal. There are plenty of popular authors out there who are Catholic, some are serious Catholics, but they're not writing Catholic literature.

O'Connor and Percy first and foremost told stories, but the stories were laced with a Catholic worldview.

I don't think you can say that about any of the popular Catholic authors today. Every piece of literature contains at least a little Catholicism (Catholicism is universal; if a story is true, good or beautiful, it's Catholic to some extent), but you're going to have to plunge deep to pull the Catholicism out of, say, a Dean Koontz book.

So, is there no Catholic literature today?

Yes there is, and it appears Angelico Press is bringing it out. Consider, for instance, this collection of short stories: In the Wine Press, which is briefly reviewed here.

The reviewer says the "book is an important marker for Catholic fiction. The airy moment of 'beauty will save the world' is over. The world is more hideous than we imagine, and only the wrath of God, which is a function of his love, will save it."

I'm not a huge fan of fiction, but this book has me a bit tempted.