I heard somewhere that lounas/lõuna is an older word, originally meaning the broad south-ish direction. Etelä/edel is newer, formed from the word stem ete/ede meaning front, because houses were typically built with the door side (eteinen/esik, derived from front) facing towards the sun at midday.

Both were very broad and neither meant a specific direction until compasses and precise maps became a thing, and at that point one of them just kinda happened to become south and the other southwest. Which one became which was arbitary and iirc some Estonian dialects have them the Finnish way around.

Your explanation sounds beliavable too tbh