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SYDNEY, Jan 31 AAP

January 31 2013, 5:43PM

New home sales posted their largest three-month percentage gain in nearly four years, further adding to expectations of a modest recovery in the housing sector.

The Housing Industry Association figures showed an increase of 13.3 per cent over October, November and December - this was the biggest increase in a three-month period since a rise of 21.1 per cent over January, February and March 2009.

HIA economist Geordan Murray said the data indicated a possible rejuvenation of the housing market in the coming months but would depend on any further interest rate cuts.

If we look at the under-performing market for 2012 - detached houses - the December improvement was broad-based as sales increased in all but one of the surveyed states," he said.

"However, the overall result for 2012 leaves plenty of room for improvement.

"It is hoped that further signs of an impending new home building recovery emerge in coming months. However, it remains the case that lower interest rates alone will not deliver a recovery of the magnitude required by Australia's economy and population."

The data released on Thursday showed a 6.2 per cent rise in home sales for December, following rises of 4.7 per cent and 3.4 per cent in November and October respectively.

Sales were up 3.3 per cent in the December quarter compared to the September quarter, but remained 12.7 per cent lower than the same quarter of 2011.

Detached house sales were down 22.7 per cent in the year to December, while multi-unit sales rose 24.1 per cent in the same period.

In December, detached house sales were up in New South Wales (7.1 per cent), Victoria (6.0 per cent), Queensland (3.8 per cent), and Western Australia (12.2 per cent).

They fell by 1.8 per cent in South Australia, but this came after three consecutive monthly rises.

CommSec economist Savanth Sebastian said interest rate cuts, as well as state grants, appeared to have encouraged would-be homebuyers into the market.

"In large part the recovery is driven by new state government grants that favour home building in preference to the purchase of existing homes - but rate cuts have also boosted home affordability, the job market has remained resilient and budding home buyers appear to have more confidence to enter the market.

"If home building lifts further in coming months, it will have broad multiplier effects across the economy, benefiting builders, material suppliers, retailers and some service businesses."

By Caroline Smith