I agree that higher interest is a worthwhile trade-off if actual prices come down, but to your last point, don't low interest rates benefit some marginal buyers by (1) lowering the monthly payment and (2) making it more appealing to put minimum down?

Granted, even minimum down is out of reach for too many people, but I feel like "if only we could afford the down payment, we could definitely afford the mortgage..." is a relatively common lament. And sometimes those lamenters don't realize you can/should put down 5% instead of 5-20%, circumstances permitting.