Your points (2) and (3) doesn't apply. In this hypothetical, the price of Bob's house went down because interest rates soared. That means he's never going to be able to refinance. It also means that even if interests rates just went up to inflation in the past year, Bob is paying less interest on his locked in hypothetical 3.5% rate than his neighbor who bought the next day at only 70% of what he paid.

(1) and (4) are valid concerns. However, if Bob stays there for a long period of time until prices rise again, he'll sell with less capital gains taxes.

So, like in many situations, and how it should work, buying a house works if you stay still for a while, and is worse then renting short term.