Will someone please tell me if interest rates matter for home prices? Conventional wisdom holds that low rates mean higher home prices, while high rates have the opposite effect. At first glance, this is one of those things that makes perfect sense: The same mortgage payment translates to a larger loan value when rates are low. But how does this hold up under statistical scrutiny?

The answer shocked me:They don’t. In fact, history shows the exact opposite is true: Home prices tend to go up with interest rates:

1. Post WWII to early 80s. Home prices marched steadily higher despite a 30 year period of rising rates, and
2. Early 80s to 2008. Interest rates dropped off a cliff, yet home prices went to the moon.

Since our eyes can be wrong every now and then, lets look to the regression results to gauge functional relationship. For those of you with bad memories of stats class, please forgive me:

What this tells me is that there is a weak (R Square) linear relationship between home prices and interest rates. Weak though it is, the relationship is clearly positive (X Variable 1 > 0).

F value, significance F, and t stat for X variable 1 all point to this statistical relationship standing opposed to conventional wisdom.

With 60, or so, years of a conflicting story, lets see if we can look at the data another way to see if theres a better trend:

The scatter plot looks horrible, showing no relationship between changes in home prices versus changes interest rates. Even stranger, the data shows positive correlation. Once again, conventional wisdom stands at odds with reality.

How Is This Possible? There are ttwo things I can think of to explain what were seeing. Either interest rates dont matter as much as other factors in determining housing prices and the correlation is merely coincidence; or, higher rates harbor, or are harbored in, conditions that favor housing.

The first case isnt too difficult to imagine. There are many factors that can affect housing: personal income, general economic conditions, supply vs. demand, family formation, population growth, technological innovations like the automobile that enabled suburbia, and so forth. Interest rate consequences can easily be lost in the mix. Maybe, if all other factors were held constant, wed see a negative relationship to validate conventional wisdom.

The second case is more difficult to explain. Can high rates actually benefit housing prices? High interest rates provide incentive to save. More savings mean healthier consumer balance sheets, better credit and more equity to put down on a home. So higher rates should influence the relative mix between debt and equity capital, but it doesnt necessarily influence total asset prices.

Things Are Different This Time; five scary words in finance. But one thing to consider is that the last housing boom was undertaken during a period of rapid and potentially unsustainable credit expansion. So even though history doesnt show us a clear negative correlation between rates and housing prices, we might surmise that the credit cycle may need to contract to reach a stable footing. If the current mix of home prices and savings levels require buyers to rely on mortgage debt that they might not be able to afford at higher rates, then we may finally see conventional wisdom meet reality.

What This Mean For Your Portfolio. The big message here is that your portfolio need not be beholden to conventional wisdom. Make decisions that are right for you, when they are right for you. While there may be continued volatility in housing, buying now with a fixed rate mortgage locks in rates that will likely mark a historical low, and will provide a good hedge against potentially accelerating inflation.

If you’re the type who would rather invest in securities than directly in real estate, consider the broad real estate sector with IYR (NYSEARCA:IYR ), or a home builder and related sub-industry fund like XHB (NYSEARCA:XHB ). Both are far off their early 2009 lows, but still 20% to 40% off of their 2007 highs.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.