I'm kind of late to this debate but Dan Chase and Dp2 make solid points. It comes down to buying power. As rates go up, the total amount able to be financed will decrease.
As a practical matter, this really offers the buyer two options. One is to make a lower offer on the house he/she might have bid on when rates were lower. This, Nycdrone, supports your premise. And it happens.
The other option is that the buyer reduces his/her expectations. He/she goes a notch or two down the property ladder--bidding on a 3 bedroom home rather than a 4 bedroom home, or a townhouse rather than a single-family house. And this happens as well. In this scenario, there isn't substantial downward pressure on prices (except at the upper end)--rather, all the buyers downsize their sought-after homes. And the sellers end up selling to folks who, with lower interest rates, would have bought somewhat more expensive (larger, nicer) homes.
As a practical matter, both happen. So there is some downward pressure on homes (from folks who either need or want the same home they could have bought last year for 4.5% but now end up having to pay 6%). But others will just sacrifice a bit on home size, location, etc.
And there are plenty of other "pressure valves" in the system, too. For instance, when interest rates topped 16%, home prices didn't fall to 30%-50% of what they'd been 10-15 years earlier. Some folks just didn't sell. Buyers might have tried offering 35% less, but few homeowners were willing (or able) to accept the lower amount. So a lot of buying/selling activity just got deferred or delayed. On top of that, lots of buyers and sellers got creative with owner financing, wrap mortgages, and the like. So, even when interest rates were 16%, not everyone was stuck with that when buying or selling.
So, I agree with your basic premise (difficult to disagree with basic economics). The bond market is the purest demonstration of the inverse relationship between interest rates and pricing. It's just that in real estate there are a lot of other complicating factors.
Implicit in your question (or maybe explicit) is the belief that many agents don't understand basic economics. I'd agree 100%. But agents aren't alone. Most people--and that includes doctors and lawyers as well as bus drivers and janitors--don't understand economics. We just have to recognize that: (1) the American educational system seems to have generally overlooked that subject; and (2) a professional (doctor, lawyer, Realtor, etc.) may be entirely proficient in his/her area of expertise but pretty much ignorant outside of that knowledge domain.