A Housing Industry Association survey shows the number of contracts signed to buy new homes rose 2.5 per cent in January from the month before.
Detached new house sales were up 2.2 per cent, while sales in multi-unit developments were up 5 per cent.
The HIA's chief economist Harley Dale says new housing construction was weak for most of last year.
However, he says if interest rates stay on hold for the first half of this year, there might be a sustained recovery in new home building.
"There is the possibility that the weakness in housing does not get to quite the point that seemed likely only a few months ago when perhaps expectations were that interest rates would be rising through first part of 2011, whereas at the moment that looks like that's not the case," he told ABC News.
In a turn-around from a protracted period of weakness, New South Wales recorded the biggest increase in January, with new home sales up 10.3 per cent.
However, South Australia lagged, with new home sales falling 6.3 per cent.