Stewart Information Services Navigates Housing Headwinds with Commercial Real Estate Growth

The U.S. housing market faces its most sustained downturn since the early 2000s, with interest rates hovering near 7% and existing home sales declining year-over-year. Against this backdrop, Stewart Information Services (NYSE: STC) has emerged as a resilient player, leveraging its commercial real estate (CRE) segment to offset residential market softness. The company’s Q1 2025 results underscore a strategic pivot toward CRE, which delivered a 39% year-over-year revenue surge, propelling Stewart to its strongest performance in over a decade.

Commercial Real Estate: The Engine of Growth

Stewart’s Title segment, its core business, reported $231.7 million in direct revenues, a 10% increase from Q1 2024, driven by a 34% jump in commercial title revenues to $75.1 million. This growth stems from two key factors: a 23% rise in closed transactions and a 13% increase in average transaction size, reflecting heightened demand for larger-scale commercial deals.

The CRE focus has also bolstered margins. Stewart’s Title segment pretax income rose 16% to $11.8 million, while its adjusted pretax margin expanded to 2.2%, up from 1.4% in the prior-year period. Management attributed this improvement to operational efficiencies and a better title loss ratio, which fell to 3.5% of operating revenues—its lowest level in five years.

Residential Challenges Offset by Strategic Resilience

While Stewart’s international commercial revenues dipped 9%—likely due to geopolitical and regulatory headwinds—the domestic CRE boom more than compensated. Meanwhile, the residential title business, which accounts for roughly two-thirds of Stewart’s revenues, faced tougher conditions.

“Despite the housing market’s struggles, Stewart’s commercial operations are proving to be a stabilizing force,” said CEO Frederick Eppinger. The company’s confidence is reflected in its outlook: Stewart expects double-digit growth in commercial operations for the remainder of 2025, even as it projects a higher full-year title loss ratio of low 4% due to potential claims volatility.

Cost Management and Capital Allocation

Stewart’s disciplined approach to expenses is critical to its success. Employee costs rose 8% to $185.8 million but declined as a percentage of revenue to 31.2% from 32.3% in Q1 2024. The company also maintained its dividend at $1.90 per share, signaling confidence in cash flow stability.

However, challenges persist. Rising interest rates and regulatory pressures—such as Texas’s potential cuts to title insurance fees—pose risks. Stewart’s adjusted net income, however, rose 52% to $7.0 million, a testament to its ability to navigate these hurdles through non-GAAP adjustments and cost discipline.

Conclusion: A Strategic Play for Resilience

Stewart’s Q1 2025 results highlight its ability to transform macroeconomic headwinds into opportunities. With commercial revenues growing at 39% year-over-year and margins expanding despite a challenging housing market, the company is positioning itself as a premier title services provider for institutional investors and commercial developers.

The data is compelling: Stewart’s adjusted net income jumped 52%, and its Title segment pretax income rose 16% to $11.8 million. Even as the residential market contracts, Stewart’s focus on high-margin commercial deals—where average transaction sizes are 12% larger than in 2024—creates a durable revenue stream.

Investors should note Stewart’s operational discipline, including its 31.2% employee cost-to-revenue ratio and its commitment to capital returns. While risks remain, Stewart’s execution in CRE and its margin improvements suggest it is well-equipped to weather the housing downturn. For now, Stewart’s strategy appears to be paying off—a lesson in adaptability for an industry facing unprecedented challenges.