Do rising mortgage rates depress price appreciation?

Just last week I undertook a detailed analysis of property sales and property prices for the past 20 years and matched them to the movements of mortgage rates in the article "Mortgage rates on the up - what will be the reaction of the property market?

A comment on that post raised my interest:

Hello Alistair
I refer to your graph entitled Rising mortgage rates generally depresses price appreciation.
I contend that the data indicates that for the first 3-4 years of the 5 year period displayed, median prices continued to increase, perhaps conservatively by 10% year on year. I don't have the raw data but it would be very interesting to overlay the 2 data sets and create a single line.
My point is this. The Reserve Bank just started increasing rates from all time lows. Historically your data indicates approx. 10% median increases in property prices for 3-4 years thereafter. So my conclusion is the opposite to yours, and price appreciation will occur, to the tune of 10% p.a. over the next 3-4 years in the absence of any major economic setback. Factor in Improving employment, Canterbury rebuild and Chinese investment and you have a glass half full situation in my opinion (if you own real estate).

The graph to which he refers is this one tracking the periods of 1994 to 1997 and 2003 to 2008. My contention as I stated in the article was that during these periods when mortgage rates were on the rise property price appreciation was depressed. Not that prices fell, just that price appreciation was curtailed.

As per the recommendation of the writer of the comment I have redone the chart to align the two periods on split axis.

I would agree, that the fact is, that given the historical experience of mortgage interest rates being raised whilst property prices have been growing at a reasonable rate the impact is not to instantly depress price appreciation, rather as the chart would seem to indicate the market adjusts. 

It is possible to argue that the reaction of the market is to mark-time for the first year as interest rates are raised, then adjust to a lower rate of appreciation for anything from 2 years to 4 years - that is all the data that is available.

Apply this analysis to the current market it would be possible to support the writer of the comment and suggest that the likely trend in prices is to see a continuation of the current rate of price appreciation of c.10% per annum for the next 3 - 4 years.