First American's Housing Business Faces High Mortgage-Rate Pressure

First American Financial Corporation FAF continues to face pressure from the housing environment as elevated mortgage rates weigh on residential activity. The 30-year fixed mortgage rate averaged 6.66% as of Aug. 27, up from 6.56% a year earlier.

The impact is visible in FAF’s residential title business. In the second quarter of 2026, purchase revenues increased only 2%, as a 6% rise in average revenues per order was partly offset by a 3% decline in closed orders. Refinance revenues rose 18% following a temporary decline in mortgage rates early in the year, but volumes moderated as rates moved higher, according to management. Purchase open orders were flat year over year through the first three weeks of July, indicating subdued housing activity.

Still, commercial title activity is helping offset residential weakness. In the second quarter, commercial revenues increased 34% to $314 million. Higher revenues per transaction are also helping offset softer residential activity. Commercial open orders rose 9% year over year through the first three weeks of July, indicating continued momentum.

Meanwhile, strong investment performance provided another earnings tailwind. Adjusted net investment income increased 11.4% to a record $1.88 billion in the second quarter, supported by fixed-income and alternative asset portfolios.

A decline in mortgage rates remains a key potential catalyst. Lower borrowing costs could improve housing affordability, increase real estate transactions and boost title orders, supporting FAF’s revenues and earnings.

What About Its Peers?

Stewart Information Services STC is navigating weak residential activity. Management expects existing-home sales growth of only about 2% in 2026, down from its earlier 6-8% expectation, reflecting the impact of higher interest rates. However, commercial activity remains stronger, with domestic commercial revenues up 20% and closed orders rising 21% in the second quarter.

Fidelity National Financial FNF is also facing pressure in residential housing. Higher mortgage rates and low transaction volumes continue to weigh on its Title business. However, adjusted pretax title earnings rose 33% year over year to $448 million, while the adjusted margin improved to 17.8%.

FAF’s Price Performance

Shares of FAF have gained 14.3% in the past year, outperforming the industry’s growth of 1.4%.

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FAF’s Undervaluation

The stock is undervalued compared with its industry. It is currently trading at a price-to-book value multiple of 1.33, lower than the industry average of 1.42. It carries a Value Score of A.

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Estimate Movement for FAF

The Zacks Consensus Estimate for First American’s 2026 revenues are pegged at $8.2 billion, indicating a year-over-year increase of 9.5%.

The consensus estimate for FAF’s 2026 earnings per share (EPS) indicates a year-over-year increase of 17.5%.

The consensus estimate for 2027 revenues and EPS indicates an increase of 7.2% and 4.2%, respectively, from the corresponding 2026 estimates.

The Zacks Consensus Estimate for 2026 and 2027 earnings has moved north 1.3% and 0.8%, respectively, over the past 30 days.

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FAF stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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