Cooling buyer demand takes a toll on Q4 title profits

After a quarter characterized by weakening homebuyer demand and some of the highest mortgage rates seen in decade, it was no surprise that Stewart and First American recorded weaker financial results in the fourth quarter of 2022 compared to the same quarter a year ago.

The two Big Four title insurers announced their fourth quarter earnings on Thursday, hosting earnings calls with investors and analysts.

At Stewart, Q4 revenue came in at $665.9 million, down from $961.7 million a year prior, while net income was $13.3 million, down from $85.5 million a year ago. Stewart’s title segment reported an operating revenue of $581.6 million, down 30% year over year, and a pretax income of $26.9 million down 77% year over year. The firm attributes these decreased to “volume declines in direct title and agency operations.” Overall, total direct title revenue for the quarter was down 31% to $269.9 million, thanks to a 32% annual drop in non-commercial domestic title orders to $171.3 million, and a 28% drop in commercial domestic orders to $66.9 million. The noted, however, that thanks to the dramatic decrease in refinance orders, the average domestic residential fee per file was up 45% year over year to $3,500.

“As a result, we are taking material, but thoughtful and targeted expense actions throughout the year to ensure we maintain financial strength, service out business well and position us for a more normal market,” Fred Eppinger, the firm’s CEO said during Stewart’s fourth-quarter earnings call with investors Thursday morning.

As the firm looks ahead to the rest of 2023 and its long-term goal to “create a stronger and more resilient business that can thrive through real estate cycles and economic conditions,” Stewart executives are looking toward diversifying the firm’s product offerings.

During the fourth quarter we added FNC Title Services, which specializes in providing title service for reverse mortgage transactions,” Eppinger said. “We are looking for market segments where you can differentiate and have growth potential with what is happening in the economy and the demographics.”

Like Stewart, after a slow fourth quarter, First American executives stressed their focus on expense management as the firm looks to navigate the 2023 housing market. During the fourth quarter of 2022, First American recorded a revenue to $1.7 billion, down 29% year over year and a net income of $54 million, down from $260 million a year ago.  For the full year 2022, First American’s revenue was down 18% from 2021 to $7.6 billion, while its net income for the year fell to $263 million from $1.2 billion in 2021.

The firm’s title segment generated a total revenue of $1.614 billion in Q4, down 26% from a year prior and a pretax net income of $114 million down from $368 million a year ago, as the number of title orders closed fell to 125,000 compared to 263,300 in Q4 2021. Although the firm’s commercial title segment had a rough Q4 with revenue dropping 34% from a year prior to $251 million, as the number of closed orders fell to 18,200 from 23,500, for the full year 2022, commercial title revenue was up 2.0% from 2021 to a record $1.0 billion — certainly a bright spot in a year characterized by the housing market slowdown.

“Refinance has been declining for the past two years, so it is now at trough levels,” Ken DeGiorgio, the firm’s CEO, said. “Based on our order trends, we are seeing early signs of stabilization with open purchase orders improving from down 40% in November to down 31% in January. The recent decline in mortgage rates combined with lower home prices have led to some improvement in affordability and therefore demand which makes us cautiously optimistic that the purchase market is in the early stages of recovery.”

Looking ahead, executives highlighted how the firm’s “healthy balance sheet” will allow First American to continue to pursue investing in key strategic initiatives and acquisitions.