Third-quarter earnings season kicked off with a bang last week with three (Stewart, First American and Old Republic) out of the Big Four title insurers reporting their earnings on Thursday.
Given the current volatile mortgage rate environment and related slowdown in homebuyer demand, it was no surprise that all three firms recorded weaker financial results compared to the same quarter a year ago.
At Stewart, Q3 revenue came in at $716.4 million, down from $836.7 million a year ago, while net income was $29.4 million, down from $88.7 million last year. The firm’s title segment reported an operating revenue of $647.9 million, down 16% year over year, and a pretax income of $51.8 million, which represents a 56% annual decline. In addition, both non-commercial and commercial title revenue were down, with yearly decreases of 18% and 5%, respectively.
“Our third quarter results reflect the headwinds experienced from increased mortgage interest rates that have significantly impacted the market. We are managing our operations in a disciplined manner during these challenging times,” Fred Eppinger, Stewart’s chief executive officer, said in a statement.
First American also had a much slower third quarter than last year, as total revenue dropped 29% year over year to $1.8 billion and net income fell from $445 million in Q3 2021 to $2 million in Q3 2022. The firm’s title segment performed a bit better than that, with revenue from title falling just 12% from a year prior to $1.883 billion and pretax income dropping from $351 million last year to $186 million this year, as the number of title orders closed in the quarter fell from 252,700 to 160,500. Executives also noted that refinance revenue had declined 68% compared to a year ago.
“Refinance has been declining since early last year, so it’s now near trough levels and no longer a significant contributor to our financial results. Our open purchase orders were down 23% this quarter, with orders declining each month throughout the quarter,” Ken DeGiorgio, the firm’s CEO, said on a call with analysts and investors Thursday morning. “And so far in October, this trend has continued with purchase order — open orders down approximately 35% compared to last year. Despite the challenging environment ahead of us, we believe the company is well positioned to emerge from this cycle even stronger. The market has shifted away from refinance towards purchase and commercial transactions, which is where we are stronger. And consequently, we are growing our market share.”
The final company to report Q3 earnings last week was Old Republic. Overall, the company recorded a third quarter net income, excluding investment gains, of $206.2 million, dropping 14.3% year over year. With the inclusion of investment income, the firm saw a net income loss of $91.7 million, compared to a gain of $88.7 million a year ago. Just like Stewart and First American, Old Republic also saw a decrease in the income generated by its title segment, which reported pretax operating income of $73.3 million, a 46% annual decline, as title insurance net premiums and fees dropped 15.2% year over year to $968.1 million. As with the other firms, Old Republic executives attributed the drop to rising mortgage rates, which it said caused a “steep decline in refinance, and to a lesser extent, purchase activity.”
“We believe that continuing with our strategic focus on serving our agents, which account for 81% of our revenue this quarter, creates a sustainable competitive advantage. The expense structure associated with this model has a relatively high degree of variable expenses, which is beneficial as we continue to navigate current market conditions,” Carolyn Monroe, the president of Old Republic’s title insurance segment, told investors on a call Thursday afternoon. “We’ll continue to deliver on our technology road map and digital business plan with a focus on optimization by looking for improvements in productivity and existing revenue with better customer engagement with an automation focus.”
With mortgage rates rising to some of their highest levels in decades and real estate brokerage firms, such as Anywhere, saying they expect to see a 25% year-over-year decrease in home sale transaction sides in the fourth quarter of 2022, things are not looking great for the end of the year.