Be Wary of So Called "Good News"

According to this Reuters article, Pace of U.S. existing home sales fastest in 2 years, sales of previously owned homes increased by 7.2% in July 2009, to the fastest pace in nearly 2 years. That all sounds great, but later in the article it states "The inventory of existing homes for sale in July rose 7.3 percent to 4.09 million units from the previous month, NAR said. At July's sales pace, that represented a 9.4 months' supply, the same as in June."

Here is why that statement is foolish.  Sales are a subset of Inventory (you cannot have more sales than there are homes for sale).  If Inventory increases at a higher rate than sales and Inventory is a larger number to begin with then it is simple math to say that the overall number of homes for sale (i.e. Inventory) actually INCREASED.  The article spins this by using July's home sales number and then comparing that to the new Inventory level to conclude that total Inventory remained the same as June at 9.4 months supply.  Now ask yourself, is July a peak selling month?  If so, does it make sense to divide the new Inventory figure by a peak sales figure and state that Inventory has not increased?  Of course it doesn't.  Therefore, mark my words, the actual supply of homes for sale (i.e. Inventory) has indeed increased which is bad news for the real estate market.