After a frenzied boom and a grueling bust, the housing market seemingly had resumed its spot as a low-drama corner of the U.S. economy. Then came the coronavirus pandemic, and housing got hot again — really hot.

The median price of homes sold by Realtors soared 17 percent from March 2020 to March 2021 — a new record, according to the National Association of Realtors. The fast run-up raises an obvious question: Why are home prices rising so quickly?

Here are four fundamental factors pushing up values.

1.  There’s very little supply of existing homes.

The coronavirus pandemic hit just as the 2020 spring selling season was about to kick off. Homeowners hit the pause button, creating a shortage of existing homes that has continued.

Now, there’s just a 2.1-month supply of existing homes for sale, according to NAR. That’s a tiny amount, up only slightly from February’s record low of 2.0 months of supply.

Such a tight supply creates its own self-perpetuating cycle: Homeowners who had been thinking of selling realize it’s going to be hard to find a home to move to, so they decide not to sell.

“Real estate is an unusual industry,” says Brian Smith of Union Home Mortgage. “Inventory is based on someone waking up one day and saying, ‘I want to sell my house.’”

In today’s market, homeowners aren’t making that decision. And with few homes for sale, the properties that are on the market are the subject of bidding wars. Many properties sell for more than the asking price — reflecting the new reality that in hot markets, the list price is just a starting point.

2. There’s not enough new construction to pick up the slack.

When the bubble of 2005-07 burst, builders stopped building — and they haven’t resumed anything close to their pre-crash pace. Housing starts have been muted for years.

“Starts are still 23 percent below January 2006 levels, leaving the U.S. housing market 3.8 million single-family homes short of what’s needed to meet demand,” says Todd Abraham, senior portfolio manager at investment manager Federated Hermes.

Builders can’t simply crank up the homebuilding machine — they have to buy land and then win regulatory approvals, which is a time-consuming process.

3. Demographic trends are driving demand.

The millennial generation of 62 million Americans is in prime time for household formation. Unlike Generation X, which numbers 55 million, millennials are a larger age cohort.

Meanwhile, the current housing boom is accompanied by an explosion of Hispanic homebuyers. That group is expected to emerge as a major force in home buying in the coming years.

4. Mortgage rates remain near record lows.

While mortgage rates no longer are at all-time records, they remain historically cheap. The average cost of a 30-year fixed-rate mortgage ticked down to 3.16 percent this week from last week’s 3.20 percent, according to Bankrate’s national survey of lenders. The 15-year fixed-rate mortgage remained at 2.47 percent.

Those rates are really low — they boost consumers’ buying power, letting them bid up prices.

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