Finding the best stocks to buy and sell in real estate can be challenging. The housing stock sector continues to be volatile and full of opportunity at the same time. REITs, home builders, and other housing related companies continue to deal with a unique set of pressures and opportunities.

The Federal Reserve’s fight against inflation is central to the current and future direction of the sector. The FED funds rate is currently at 5.5%. Mortgage rates have risen above 7.7% nationally. Although high mortgage rates have cooled the housing market to some degree with prices falling over the last year, prices remain elevated.

The rental market too has been affected, and is subject to a set of unique factors. In short, housing stocks to buy offer both opportunity and risk. Let’s look at a handful of them.

Avalon Bay Communities (AVB)

Avalon Bay Communities (NYSE:AVB) Operates a real estate investment trust primarily focused on multifamily communities. Investors continue to be attracted to multifamily REITs because interest rates remain high. Home ownership has become much more difficult and investments in rental properties are attractive.

I would argue that AvalonBay Communities are among the best stocks to buy at the moment.

Investors who have never considered REITs should understand that they’re analyzed differently than other general stocks. Normally, net income is a prime consideration when deciding which stocks to buys. However, REITs shouldn’t be measured by EPS and instead should be measured by funds from operations.

AVB stock’s FFO continues to hold steady, suggesting overall health. The stock’s dividend continues to be healthy and was last reduced in 1994.

Essex Property Trust (ESS)

Essex Property Trust (NYSE:ESS) acquires, develops, and redevelops apartment properties. It’s another of the better RIET stocks to buy.

Let’s start where we left off with AvalonBay Communities by discussing the stock’s funds from operations. Total FFO increased 7% during the most recent period. Further, earnings per share increased by 55% during the 9 months that ended Sept. 30 at Essex Property Trust.

The company also reaffirmed the midpoint guidance in that earnings report for many of its most important metrics.

The company’s portfolio of properties spans rentals in southern California, northern California, and Seattle. The company’s rental income has increased by 5.1% in 2023 overall and by 3.3% in Q3.

Meanwhile, delinquencies have fallen by 0.7% and 0.6% in those periods, respectively. Overall, Essex Property Trust appears to be a solid stock for investors seeking income from an apartment property REIT.

Toll Brothers (TOL)

Toll Brothers (NYSE:TOL) builds luxury homes in the U.S. and currently has operations across 24 states.The company builds both attached and detached homes and spans areas as diverse as Senior Living and urban apartments. 

The company recently announced plans for multiple joint ventures. One of those JVS is developing a 456 unit luxury apartment community in Phoenix. Another is developing a 680 Bed luxury property in Orlando. 

Toll Brothers appears to be doing very well. Net income increased in the third quarter to $414.8 million, up from $273.5 million a year earlier. Home sales revenue increased by 19% to $2.7 billion.

Further, the company benefits from a large backlog worth $7.9 billion. That backlog has decreased by 30% suggesting that supply chain issues continue to resolve. The luxury housing market appears to be very strong at the moment and Toll Brothers is a sound investment for those interested in the sector. 

PulteGroup (PHM)

PulteGroup (NYSE:PHM) is another home builder stock. The company serves a diversity of customers that includes first-time buyers, move up, and what it refers to as active adults. The company primarily serves home buyers looking to purchase their second home.

Its customer base is more stable than younger buyers seeking to purchase first homes.

The company notes that one of its overarching objectives is to create value for investors through dividends, share repurchases, and the retirement of debt. During the third quarter, the company repurchased $300 million of its shares and retired $65 million of senior debt.

PulteGroup Is healthy with growing revenues and earnings. The company’s backlog is valued at $8.1 billion and new home orders increased by 43% during the period.

I would assert that it is one of the better home stocks to buy given its history of value creation as measured by its return on invested capital relative to the cost of that capital. 

Home Depot (HD)

In general, Home Depot (NYSE:HD) acts as a bellwether for the housing market. Overall investment in housing tracks with the company’s performance as contractors use the company heavily.

Based on that logic, the housing market continues to suffer. Home Depot will almost certainly suffer a sales decline In 2023. The company released earnings two weeks ago and announced that it expects sales to decline between 3% to 4% percent this year.

Further, management expects earnings per share to fall by a rate between 9% to 11%. While the company gave narrower ranges for both sales and earnings, guidance declines the news is still net negative.

Home Depot continues to see demand for Big Ticket items decline. That’s a particularly negative sign for the company. In turn it continues to look for other high margin sources. On Nov. 20, the company entered into a green an agreement to purchase International Designs Group. 

Investors should wait for further signs of an easing rate environment before investing in HD stock. 

Zillow (Z)

Investors should stay away from Zillow (NASDAQ:Z) at the moment. The company operates as a real estate developer and as a real estate media firm. It continues to be a source of general information for housing investors. However, I see a few reasons investors should simply stay away.

Some investors have warmed up on Zillow under the presumption that the markets have weathered the worst of the storm. further, the same investors would point to the notion that interest rates are expected to be cut in 2024. that will lead to declining mortgage rates prompting home purchases. that’s all good and well and logical and if nothing negative happens I would expect Zillow to improve.

 Zillow is broadly exposed to the housing market in ways that firms listed above are not. So, it continues to be at high risk overall. Beyond that, I believe investors should simply look at its current performance. The company posted a net loss of $28 million in the third quarter. For investors like me that should be enough to prompt its sale.

American Homes 4 Rent (AMH)

American Homes 4 Rent (NYSE:AMH) Is a single home REIT stock that investors should shy away from.

American Homes 4 Rent  would appear to be strong based on FFO. In 2023, core FFO increased by 6.6% And by 7.1% in the third quarter. 

However, American Homes 4 Rent Continues to be weak in that regard relative to its competitors. The stock’s FFO-to-price ratio Is lower than 80% of competitors. There’s a strong case to be made that its shares are overpriced.

The company is also in overall financial distress based on its Altman Z score. That score is quite low and is at a level that suggests the company may be at risk of bankruptcy in the future. 

On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.