Part of the reason we've had an insane housing market valuation growth over the last ~40 years is that cost of capital has gone down from ~15% to 2.5% over that time frame. If rates were near the historical average right now, you would see very different asset prices.
A few things have changed. One is in choice few major metros, like SF, city councils abjectly refuse to allow new construction taller than existing construction to the benefit of landowners. This artificial supply constraint is pretty much solely responsible for the massive increase in pricing in these metros.
The other thing that’s changed is minimum setback rules, minimum sizing rules, and various other council ordinances - in addition to what Americans consider a suitable home for their living situation. As such new homes are on average twice as big now as they were in the 1970s.
Make no mistake though the average price per square foot for a home in the United States has tracked inflation almost precisely for the last 50 years.
This is purely supply, demand and artificial constraints - not monetary policy. Compare to Tokyo where housing downtown is a few hundred thousand dollars. I suspect if interest rates were lower you’d see smaller houses, not cheaper ones - that’s what happened there!
[1] https://fee.org/articles/new-homes-today-have-twice-the-squa...
If I had to speculate the current market froth has more to do with individuals access to leveraged investments via smartphone apps like Robinhood. The pandemic has turned them into a generation of gamblers. When you buy options from a market maker they hedge by purchasing the underlying. This has a positive feedback cycle effect causing them to purchase more and more to hedge. Look up a gamma squeeze.
https://realmoney.thestreet.com/investing/stocks/is-the-gamm...