Yes, because it is not a realistic value. It is actually not "value", but an inflation brought about by too many people chasing too few dwellings.
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You've stated the definition of how value is generated. Supply and Demand set the market price for a good or service.
Inflated value would be the false perception that there is either less supply or more demand then actually exists, or unrealistic expectation that either one will occur in the future.
Since there actually is more demand for housing this isn't the case.
The perception is not false. It is the reality. The supply of dwellings is less than the demand. Real Estate does not succumb to the platitudes of "Free Market" theories that can be supposed upon commodities. Housing has complications, not the least of which are interest rates, the money supply and the long term effects of the deficit.