I'm wondering, however if this is a fallacy.
I certainly wouldn't call it a fallacy. If you can lock in super low rates, then that means a lot, and you can hardly just shrug that off as something that is sure to be neutralized by other effects.
Other effects do exist, of course, but the key is how much you expect the present value of all your future payments to be, relative to how much a real estate investment might cost in other times.
All things being equal, a rise over time in interest rates would put a damper on future home price appreciation. But none of this happens in a vacuum. Interest rates are artificially manipulated based on, among other things, how high home prices are. So there's definitely some game theory type strategy that could be modeled on the periphery, but basically, the system is set up to keep things relatively stable, so as long as you don't buy when home prices are absurdly high relative to rental prices (or when you get a bad financing deal), then I think that should be the primary consideration.
By the way, aren't you the guy who always posted that Shiller chart? (The one below is from about 2.5 years ago.) Image: http://static.seekingalpha.com/uploads/2010/9/27/saupload_shiller_graph_1_thumb1.png
He's got all the real home pricing data you would want in his 3rd-to-last paragraph (on his Online Data
webpage), and all the interest rate data (and its effect on equities) you would want in his 2nd-to-last paragraph.