Despite ongoing uncertainty and a variety of economic headwinds, Fitch Ratings is maintaining a neutral outlook on the title insurance market for 2024, according to a report released Thursday.
Fitch said its neutral outlook is underpinned by Fitch’s view that mortgage rates are near peak levels. Although Fitch said it is expecting another 25-basis-point hike to the Federal Funds rate in the coming months, it did say that it’s expecting the first interest rate cut in May 2024.
The anticipated decline in interest rates is expected to boost mortgage originations, with the Mortgage Bankers Association predicting a 20% year-over-year jump in 2024, after a 30% annual decline in 2023.
As a result, Fitch said, “a slight improvement in operating performance across the rated title insurer universe is projected in 2024, with total revenues and margins moving off of 2023 lows.”
While lower interest rates are expected to help revive purchase volume, Fitch believes they won’t decrease enough to materially improve refinance volume.
Most homeowners would need a reduction of approximately 75 basis points from their original borrowing rate to make a refinance economical, Fitch reported. In addition, as of the second quarter in 2023, Fitch estimates that nearly 90% of existing mortgages have a rate below 6%, meaning refis will be “anemic over 2024,” the ratings firm said.
Additionally, Fitch reported that it expects commercial title volumes to be modestly down year over year in 2024 as the office and retail property segments continue to experience economic pressure.
Despite these challenges, Fitch expects industry revenues to improve by roughly 3% annually in 2024, with the GAAP operating performance of the Big Four title firms expected to be in line with 2023 numbers as companies continue their operating expense-management measures.
These factors have led Fitch to stand firm on its ratings of the three national title underwriters it rates. In 2024, Fitch said it anticipates Stewart Title to maintain its “A-“ rating while it believes Fidelity and First American will maintain their “A” ratings. (Fitch does not rate Old Republic.)
Although its outlook is neutral, Fitch identified a handful of circumstances that it believes might lead to the title sector producing dismal financial results. These include substantially higher mortgage rates, tightening credit market conditions or a more severe recession that impacts unemployment levels.
“Title revenues will be constrained in 2024 compared to historical recent high watermarks, but relatively flat compared to 2023, with interest rates approaching peak levels,” Gerry Glombicki, a senior director a Fitch, said in a statement. “Affordability issues and concerns about a recession are two things Fitch is watching closely in 2024.’’