Due to a combination of macroeconomic challenges and affordability constraints, investors should be aware of the real estate stocks to avoid. Admittedly, the contrarian narrative initially seems compelling. With publicly traded securities in the housing sector suffering steep losses last year, this year might offer an upside opportunity. For a brief moment, a sharp drop in mortgage interest rates brought out homebuyers from the woodwork.

Unfortunately, as CNBC pointed out, the dynamic likely represents only a brief respite. With interest rates bouncing back higher again, home sales could once again dip. Moreover, the Federal Reserve may very well remove the kiddie gloves in its ambitions to control skyrocketing inflation. If futures jobs reports turn up the heat, rates may move higher still. That will impose an affordability crisis, thus necessitating a discussion about real estate stocks to avoid.

As well, companies continue to lay off their workers in droves. As well, a Bankrate survey revealed that about 45% of millennials report owing more on their credit cards than the amount of money saved for potential emergencies. With problems compounding problems, these are the real estate stocks to avoid.

Zillow (Z, ZG)

At first glance, Zillow (NASDAQ:Z, NASDAQ:ZG) appears to be on an impressive recovery effort. Since the Jan. opener, the Class C Z stock gained 26% of its equity value. However, it remains down over 14% in the trailing year, raising a cautionary tone. Fundamentally, with the consumer base – particularly younger folks – suffering significantly from the current economic environment, Zillow doesn’t seem appetizing.

Financially, the core numbers suggest investors should consider Z as one of the real estate stocks to avoid. First, on a per-share basis, its three-year revenue growth rate slipped to 15.3% below breakeven. In terms of profitability, its gross margin is only 29.4%, worse than over 86% of its peers. As well, its net margin is 1.63% below parity. If that wasn’t alarming enough, the market prices Z at a forward multiple of 41.24. This ranks worse than 85.71% of the industry.

Finally, Wall Street analysts peg Zillow as a consensus moderate buy. However, their average price target sits at $42.50, implying less than 0.2% upside potential. Frankly, this is one of the real estate stocks to avoid.

Redfin (RDFN)

Back during the booming days of the post-pandemic period (but before 2022), Redfin (NASDAQ:RDFN) executives would often make appearances on business news outlets. With their jovial countenances, the framework implied more good times ahead. Unfortunately, 2022 called and gave the housing sector a beatdown. Now, RDFN may rank among the real estate stocks to avoid.

To be fair, Redfin’s financials look better than Zillow’s in many regards. For instance, while both feature decent stability in the balance sheet, Redfin enjoys a higher Altman Z-Score (18.75 versus 4.03). This gauge reflects bankruptcy risk, with higher figures indicating greater stability. As well, Redfin’s three-year revenue growth rate stands at a positive 15.7%.

Still, the problem for RDFN is that its operating margin slipped 3.6% below parity. In addition, its net margin also fell to a similar magnitude below zero. And at a forward price-earnings ratio of 36.49 times, it’s overvalued. Lastly, Wall Street analysts peg RDFN as a consensus hold. Further, their average price target is $7.51, implying less than 0.3% upside potential.

Newmark Group (NMRK)

Let me drift a little bit into another lane regarding real estate stocks to avoid and discuss Newmark Group (NASDAQ:NMRK). While it might be tempting to believe that the commercial property market is booming, that’s not the experience that Newmark has. Since the Jan. opener, NMRK dipped over 4% in equity value. And in the past 365 days, it’s down over 51%.

In a similar situation to brokerages in the residential arena, Newmark’s financials present a questionable profile. Glaringly, Gurufocus.com points out that the company’s three-year revenue growth rate fell 2.7% below parity. As well, its free cash flow (FCF) growth rate during the same period dipped 1.7% below zero. In terms of valuation, NMRK trades at a trailing multiple of 16.82. As a “discount” to earnings, this ranks worse than 69% of the competition. Also, its price-to-tangible-book ratio is 7.06 times, which is extremely overpriced.

Turning to Wall Street, analysts peg NMRK as a consensus moderate sell. True, their average price target implies over 22% growth. All things considered, though, NMRK may be one of the real estate stocks to avoid.

Opendoor (OPEN)

Initially, Opendoor (NASDAQ:OPEN) enjoyed a compelling narrative. Leveraging artificial intelligence to undergird the buy-and-flip process (called the iBuyer business model), Opendoor appeared to set the pathway for a novel approach to buying a home. Unfortunately, after the hype faded, OPEN legitimately became one of the real estate stocks to avoid.

Now, here’s the tricky part. Since the January opener, the OPEN stock gained nearly 34% of its equity value. That’s an impressive tally. Unfortunately, in the trailing year, it’s down more than 77%. In my opinion, that’s the more critical metric to consider.

For additional pause, investors need to examine Opendoor’s financials. Conspicuously, it suffers from balance sheet weakness, most notably a 2.22 Altman Z-Score that reflects distress. Furthermore, its three-year EBITDA growth rate plunged 58.8% below breakeven. And yes, it suffers from a negative net margin too. Looking to the Street, analysts peg OPEN as a consensus hold. Now, some hopeful analysts believe big things for OPEN, meaning that it carries a potential upside of nearly 141%. For me, I’ll watch from the sidelines.

Rocket Companies (RKT)

For determining the health of residential real estate, mortgage leader Rocket Companies (NYSE:RKT) is a key benchmark. Unfortunately, the poor condition of the average consumer economy – with layoffs and high debt loads imposing headwinds – hurts RKT. Yes, since the Jan. opener, RKT gained almost 23% of its equity value. That’s definitely not nothing. However, in the trailing year, it’s down over 29%.

Again, the latter figure probably ranks more emblematic of Rocket’s situation than the former. Financially, Rocket suffers from a messy situation. Conspicuously, the company suffers from a very weak, debt-laden balance sheet. Heading into unknown waters, such debt may become a serious liability.

Operationally, Rocket’s three-year revenue growth rate fell 45.9% below parity. Also, its book growth rate during the same period is 42.3% below zero. Fortunately, its net margin is positive but barely at 0.82%. Not surprisingly, Wall Street pegs RKT as a hold with an implied downside risk of 14%. In my opinion, enough evidence exists to suggest RKT ranks among the real estate stocks to avoid.

LoanDepot (LDI)

A competitor to Rocket Companies, LoanDepot (NYSE:LDI) specializes in mortgage and non-mortgage lending products. Fundamentally, LoanDepot appears headed for a double whammy. For one thing, the weakened consumer economy naturally hurts demand for big-ticket items. Second, soaring inflation may cause the Fed to raise interest rates aggressively, also negatively impacting LDI stock.

To be sure, LDI bulls launched a valiant effort in the new year. Since the January opener, shares bounced up more than 18%. Unfortunately, in the trailing month, shares plunged 26%. And in the past 365 days, they’re off the mark by 49%. Therefore, unless you see something major materializing, it’s one of the real estate stocks to avoid.

Certainly, the financials don’t provide an encouraging profile. While LoanDepot’s three-year revenue growth rate stands at 58.3%, its net margin fell 11.4% below parity. Further, its return on equity (ROE) sits at 35% below zero. Finally, covering analysts peg LDI as a hold. Moreover, their average $1.88 price target implies almost 3% downside risk.

Broadmark Realty (BRMK)

According to its website, Broadmark Realty (NYSE:BRMK) is a specialty real estate finance company investing in opportunities throughout the small to the middle market. Although Broadmark focuses on commercial endeavors and multifamily units, it’s not immune from the troubles affecting residential real estate.

True, BRMK gained nearly 39% of its equity value since the January opener. However, in the past 365 days, it cratered by almost 36%. Since its 2018 public market debut, shares dropped 48%. Not a shocker, Gurufocus.com warns that Broadmark may be a possible value trap. In fairness, the company enjoys a cash-rich balance sheet (relative to the underlying industry). However, it gets shaky from there. For instance, its three-year revenue growth rate is 7.7% below parity. As well, its net margin is deeply in negative territory.

Turning to the Street, covering analysts peg BRMK as a hold. Their average price target is $5.50, implying nearly 9% upside. That’s not bad. However, given its fiscal vulnerabilities, I’m more inclined to say it’s one of the real estate stocks to avoid.

On the date of publication, Josh Enomoto 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.