I would not be surprised if this is the situation in various markets all around the US. 

A friend bought new construction. Two weeks before closing the builder demanded an additional $200,000.  And yes, they paid the demand.

Scarcity = Supply &Demand Appreciation
Inflation = Your Dollars are being devalued Daily
And now it will take more of these
Devalued $$$ to buy the same house

That happens off and on in Northern VA. It's been on mostly over the last few years. Builders are buying ramblers on 1/4 acre lots for $600,000.00 in Vienna Woods, tearing them down, then building 1.2 - 1.5 million dollar homes on the lots.

Where are folks getting this kind of money to cover these prices?

Nothing here that I'm aware of, but I do know people in other states buying up land off of potentially major roadways in the hopes of it going up in value if the roads become major.

What's happening around me is people are overpaying and will likely live to regret that. 

People have money to spend.

Yep. I have people desperately trying to buy land now to build later because everything is selling. Prices have gone up like crazy.

Same here, Richie. In the Charlotte market, new construction is outrageously priced. Builders are experiencing inflated building costs and are coming back to buyers demanding more money. Sadly, many buyers are paying it. (Been there, done this with buyers!)

During the building process, valuations also rose and builders are absolutely fine with the original buyers walking. Why not? They can ask and command a higher price with the next buyer. In fact, some builders HOPE the first buyers walk. (Also, been there, experienced that!)

While resale inventory is way down, it's best to wait on a resale, if you have the time. 

Vacant or undeveloped land in the Tampa Bay area get increadible attention for the tree huggers and want all of this land perserved for turtle habitat, people are not their concern.
When a developer does acquire a vacant space, there will be 10 years of litigation from those huggers. But it gets settled.
Then the community rises up if one new resident is added. The exclusionists and eliteists of Florida want everything to stay as if still in 1979.

These factors mean 'infill' or the 90 minute commute are the options.
The self-inflicted scarcity makes housing incredibly expensive for those just beginning their ownership journey.
There are solutions but county and city leaders are unwilling to consider anything other than subsidized housing. Bigger budgets, more money equals increased power.

Not so much in the downtown Chicago condo market where big discounts have been necessary since the pandemic. Surprise, even this market may have turned the corner and profits are appearing again.