In the last two years, the homebuilders showed some strength between Jan-April. Then in May they all took a big slide. Im assuming that the initial strength between Jan-May was in anticipation of the summer when house buying is usually most prevalent because the kids are now out of school. I took a drive around and there are an increasing amount of for-sale signs popping up and I've come to find that many of these are bank repos. Somehow I feel we might have to retest January's lows...
I don't think any past seasonal trends will have any effect on homebuilders for at least the next year - things are quite different from normal right now. That being said I agree with you that I think they are in for a world of hurt and it hasnt been fully priced in. The trickle-down effect of ARM resets leading to missed payments/loan defaults leading to foreclosures is just starting, its not anywhere near over. There is going to be a glut of low-priced REO homes for sale on the market for quite some time and I don't think there is enough demand out there to soak it up, especially now that lenders have tightened up on their credit policies (e.g. you need to have more then a pulse to get a mortgage these days, unlike 2005)
It appears the XHB is slipping a little more today (and yesterday). I would be a buyer of the XHB at the 52 week low or a notable bounce at the 15 area. I wouldnt buy any of the individual components as who knows if one of them might announce a bankruptcy.