Stocks to buy

Most housing stocks could come under pressure this year. After all, persistently high mortgage rates and home prices, coupled with concerns around inflation, bank sector chaos, weakening economic growth, and a very real possibility of recession have kept a lot of potential homebuyers on the fence. Granted, median existing home sales fell about 0.9% year over year, which is the second consecutive month of declines. However, total existing home sales are down about 22% year-over-year. With that, we’re likely to see additional housing price fluctuations.

Notably, “If current economic conditions persist, with elevated mortgage rates and home prices amid scarce inventory, the market is likely in for a long, slow climb and a few bumps along the way,” said Danielle Hale, chief economist at Realtor.com, as noted by Forbes.com.

While most of the housing market will remain a tough place to invest in for the foreseeable future, there are still some housing stocks that may prove resilient.

Look at apartment real estate investment trusts (REITs), for example. Sky-high home prices and mortgage rates pushing down affordability, boosting demand for rentals. For example, according to Robb Report, the number of households rented by people making $150,000 or more increased to three million between 2016 and 2021. That’s an 87% jump in just five years. And while rents are on the rise, many are better off financially if they hold off on buying until home prices cool off.

That makes housing stocks, such as apartment REITs even more attractive.

EQR Equity Residential $62.24
AVB AvalonBay Communities $178.11
MAA Mid-American Apartment Communities $151.40

Equity Residential (EQR)

Source: David Gyung / Shutterstock.com

With a yield of 4.2%, Equity Residential (NYSE:EQR) is one of the largest multifamily REITs on the market. It has about 301 properties spread across the U.S., including 79,351 rental units. What’s impressive here is that EQR just had another strong quarter, with normalized funds from operations (FFO) growing 13% year-over-year. These metrics were driven by stronger leasing trends. Even same-store revenue was up 9.2% year-over-year, thanks to higher demand.

Analysts like EQR are here, too. Piper Sandler, for example, just raised its price target to $63 from $59, with an underweight rating. The firm added that “Earnings show apartments are more durable than anticipated following the post-pandemic rent hikes and corporate layoffs.”

AvalonBay Communities (AVB)

Source: Romolo Tavani / Shutterstock.com

With a yield of 3.7%, AvalonBay Communities (NYSE:AVB) is another hot apartment REIT to consider.

Currently, AVB holds about 295 apartment communities with 88,826 apartment homes in 12 states. Just as impressive, AVB had a solid quarter, with a 13.4% gain in FFO per share. Same-store total revenue was also up 9.4% to $629.9 million.

And while its focus has been in high-cost areas like New York and Los Angeles, it’s expanding into the South Florida, North Carolina, and Texas markets. Plus, with apartment demand as strong as it is, AVB should continue to grow its rental income, and maybe even increase its yield.

Piper Sandler raised its price target on AVB to $193 from $160. Just as we saw with EQR, earnings show apartment rentals are still far more durable than other real estate asset classes right now.

Mid-American Apartment Communities (MAA)

Source: bluebay / Shutterstock.com

There’s also the Mid-American Apartment Communities (NYSE:MAA) REIT. With a yield of 3.65%, MAA has a portfolio of 300 apartment communities, with 102,000 rental units.

The REIT, which has been public-traded for about 28 years now, has paid out 117 consecutive quarterly cash dividends. It’s also raised its dividend every year for the last 13 years. Better, its Q1 FFO came in at $2.28, a three-cent beat. Revenue, up 11.1% year over year to $52.9.03 million, beat by $630,000.

Plus, as noted by Seeking Alpha, “Higher interest rates benefit MAA, as higher mortgage payments resulted in some buyers being priced out of single-family homes, resulting in stickier demand for MAA’s apartment communities. This is reflected by occupancy remaining stable at 95.5%.”

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

Ian Cooper, a contributor to InvestorPlace.com, has been analyzing stocks and options for web-based advisories since 1999.

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