Interest rates are set by the market (i.e. supply and demand) and by policy makers that influence money supply and set lending rates for banks (i.e. rates banks can borrow at from Central Banks).
Given the US and European turmoil it is fair to assume that Central Banks will keep their rates very low. (1% in Canada, 0.25% in the US right now) It is also fair to assume that states or conglomeration of states through facilities such as ECB, IMF and various bail out funds will keep excessive (fiat, artificial) money in the system, thus de-valuing money.
Many "advanced" states have maxed out their borrowing capacity, thus government spending has to be cut. That is politically difficult in democracies run by professional politicians and their bureaucrats with indexed pensions. Thus, we are entering a "lost decade" i.e. continue at a very sluggish pace, on average .. with higher prices for real stuff like food, commodities, .. see article here:
http://business.financialpost.com/2011/11/09/is-the-world-entering-a-lost-decade/
Thus, it is very important to not get caught in the headlines of "average" house prices or "average" (sometimes negative) growth as some areas of the world will do far better than others. I happen to believe that this is AB and SK, and pockets in BC and ON and NL (or certain US states or European cities) .. with growth far above interest rates or average elsewhere.
Yes, interest rates will stay low for a while .. VERY LOW .. but with risk adjusted premiums, depending on the borrower or the underlying asset. There is big money supply from confused investors and governments eager to not cut spending too quickly. Inflation is the easier answer.
Stagflation really: Stagnant growth coupled with inflation.
Ensure the asset yield (ak CAP rate) is 2-3% above the mortgage rate, ensure the asset is in a growing region, and ensure that you have positive cash-flow to hold 5 or better 10+ years, and you will do just fine amongst the lost decade upon us !
Canada will do far better than Europe or US, due to in-migration, huge resource sector, modest debt and sensible centrist governance, but will be slower from 2011 to 2020 than from 2001 to 2010 .. But will also have a very uneven distribution of growth. Avoid provinces or cities with very high debt loads.