This paper investigates how changes in the central bank policy and retail mortgage rates affected real housing prices in New Zealand during the period 1999–2009. We find that real interest rates are significantly and positively related to real housing prices, indicating that increases in the policy rate may not be effective in depressing real housing prices. By testing interest rates, we also find some evidence of housing price bubbles. Our findings suggest that the central bank could have limited housing price bubbles if it had started to intervene in the housing market prior to 2003. Our results set international exemplars for using policy rates or macroprudential tools to cool the housing market, where the extent of policy rate adjustments is limited by internal or external economic factors.