Keeping it as a rental may work (or maybe just rent to the baby mamas), but I imagine that on the macro level, most people will need the equity to purchase the larger house.
I have never lived in a time when rates were significantly higher than a few years earlier. What happened in the 80s when rates were high?
What does that do to the demand for “move up type properties?” It would seem like the incentive would be against trading in a 3.5% loan for a 6% plus loan.