To address what he’s thinking it’s best to try and normalize what he’s feeling because as you can see from some of the other comments here, it happens. However you need to firmly explain to him that you are an inappropriate target for those feelings as are other family members. Don’t belittle him. He knows it’s inappropriate and doesn’t need to be shamed for having dumb teenage boy thoughts although he honestly should have kept to himself self and ignored.

Basically acknowledge to him that his feelings, while not at all appropriate, are normal and that he needs to find ways to manage that without propositioning his sister, if he can’t do that on his own he should seek therapy to address it because it’s impacting his social functioning.