Lower interest rates allow more people to be able qualify to purchase a home, thus more people can afford to purchase. At the same time because more people are able to purchase homes it reduces the amount of homes on the the market (reduces the supply) which in turn pushes up the cost.
Conversely, when interest rates are high fewer buyers are able to qualify for a loan which increases supply. Over supply tends to push prices lower.
I've heard that whenever interest rates rise .25% it disqualifies about 100,000 people/families from being able to purchase. In times of high employment artificially low interest rates tend to over-heat the real estate market, and the economy in general, by increasing demand. We saw that a few years ago when the RE market balloon out of control and eventually blew up and prices tumbled and foreclosures skyrocketed.
Generally speaking lower interest rates effects home buying more favorably even if it tends to reduces the supply. The most negative factor that effects home values and purchasing a home is a high unemployment rate. In todays real estate market with both the lowest prices in recent times and interest rates at 50+ year lows, because of double digit unemployment rates the RE market is still in the toilet in most areas.
High unemployment also means more foreclosures which in turn forces values down because it increases supply. At the same time the high foreclosure rate reduces the supply of rentals, thus increases demand for rent units which helps drive up the cost of rentals.