> locked in <3.5% are not planning on selling in the next 10 years or more

Not just that but looking further out at retirement, downsizing and staying in the same area is not looking possible. The house might be worth $X on paper at that point but if you sell you are then thrust into a market where everything is much higher. Its financially more palatable to just stay put even if you don't need the space. I imagine people within a couple years of this decision are staying put right now and this will keep demand up regardless of rates.