The Homebuilders ETF (AMEX: XHB, Stock Forum) has not bounced much of late, despite the market's recent rally attempt, suggesting that investor confidence in the sector is turning increasingly negative. Yet its overall weak performance is more about the future of things that may be on its way.

The real issue for investors in the homebuilder stocks is whether the bottom is in. And recent action does little more than raise more questions, as the news remains grim with regard to any recovery.

The fact is that there is a glut of homes, both new and previously owned on the market, and that although mortgage rates and pricing discounts are starting to attract some buyers, the pace of sales is nowhere near fast enough to move enough inventory off the market at a fast enough pace to alleviate the overhang.

That means that earnings for most homebuilders will be flat at best for the foreseeable future.

XHB for its part has given back a bit more than half of its gains since it bottomed in December. The fund has also broken below key moving average support, with the 21 area providing the first shelf of resistance overhead, and the 24 area providing a stiffer test since that was the high off of the December bottom. 

Of course none of this is news. Except of course that the lack of any lasting bounce in these stocks is proof that Wall Street is extremely worried about the lack of viability for a significant portion of the market and the U.S. economy. More to the point, despite many of these stocks selling at very low multiples, no one has stepped up and tried to buy a single one of them.

So think about this as you keep an eye on the homebuilder sector. If the Federal Reserve raises interest rates in the July-August time frame, as many in the market are expecting, it is not likely to be something that's helpful to this sector.