Home values rose faster than ever in 2021. The median sales price for an existing home was $346,900, up a whopping 17% from the prior year.

That made things tough for people looking to buy a house for the first time.

But for those who already own the roof over their head, the typical American homeowner saw a gain of $50,200 in home equity, or housing wealth, in just a single year.

"The price increase is a record," says Lawrence Yun the chief economist for the National Association of Realtors which just came out with the new numbers. He adds that the rise in home values is "even stronger than the days of subprime lending."

Yun is referring to the ruinous lending practices that fueled the housing bubble and led to the financial crisis 15 years ago. Back then prices were getting artificially boosted because people were paying more than they could actually afford.

But Yun says reforms put in place by Congress since then insure that people can afford the home loans they get. So something very different is happening now.

"We are facing a major housing shortage," Yun says. "In December, we saw record low inventory, an all time low, there's simply not enough homes available for sale."

Meanwhile, during the pandemic, millions of people working from home have wanted more space and have been trying to buy homes. Record low supply, coupled with strong demand, has pushed prices up quickly and dramatically. But Yun expects price gains to moderate this year, perhaps to around 4% to 5%.

"The price gains will begin to normalize," he says. "And people should not anticipate another year of this double digit rate of appreciation."

Still, the housing market will remain out of balance so long as the supply of homes is so constricted. After the financial crisis, many homebuilders went out of business, and for a decade the builders that were left did not build enough homes given population growth.

In fact, estimates are that the U.S. is short several million homes. And building more won't happen overnight.

Homebuilders say they are facing major headwinds including, in many places, a lack of available land, labor, building materials, and overly restrictive zoning.

"Policymakers could help by reducing lumber tariffs," says Robert Dietz, the chief economist of the National Association of Homebuilders. He says local and state governments could also help get more affordable homes built by, "enacting zoning reform to allow builders to build with greater density."

He says workforce development programs to train construction workers are needed too.

Copyright 2022 NPR. To see more, visit https://www.npr.org.