This isn't a 17% drop in values, it's a 17% drop in sales, meaning 17% fewer homes are being sold as of last month. I think there's a good chance that's pretty consistent on both sides of the transaction, since sellers are less willing to trade their low rates for a higher rate, and buyers are less willing to have the down payment for higher rates.

We've been interested in moving to upgrade our house (want a guest bed and a bigger master bed) and to reset the capital gains exclusion (we're up around $350-400k, cap gains exclusion is $500k), but it's not worth giving up our lower rate. We'll be interested if rates drop below 5%, but with current rates around 6.5-7% (depending on term), we're not interested.

I imagine a lot of homeowners are like us. They don't need to move, so they'll put it off until mortgage rates are more attractive, or until they need to move.