True, you’re right, there’s a pile a cash if you sell.  You then give up a lower monthly living expense, a lower interest rate for 30 years, a low tax based (prop 13), the home you’re happy living in, the ability to do what you want to with it (rent out all the room and make a profit while living in the garage), etc.  Again, you’re right that you do gain a pile of cash.  But you’re losing a bunch of stuff for that pile of cash.  It’s not as black and white as you stated.

This is not even talking about the emotional side of that decision.  The memories you and your family built in the house over the last few years, the moving of your kids to potentially different schools, the hassle/cost of moving (maybe even storage), the risk of dealing w/ a jackass landlord, etc.

Bottomline is, looking at the supply right now, most people rather not move than selling for the pile of cash.  So, obviously, for most, the cons of selling outweigh the pros, that’s why supply is not increasing.