So my 8yo has this rich imagination, but she has this obsession with "The Littles" living in our walls. She writes them notes etc fully expecting them to answer.
I'd tell her they aren't real. If she wants to believe, she'll just think you're a silly grown-up. I think. But then let her read books about things just like that.
I loved the Borrowers books, and my mom told me things like faeries and Littles didn't exist all the time. One of my favourite stories was The Brownies that would could into peoples' homes and clean them.
I was thinking of "The Borrowers" too. I guess I'd say gently, "It's nice we can pretend this" and then maybe even write an answer but I wouldn't make a big deal of the unreality of it.
I'm also keen on letting little ones believe in magic, at least for a little while. Most figure things out otherwise as they get older on their own anyway.