As the real estate market continues to defy all sense of logic and propriety like a pantsless NOLA reveler at Mardi Gras, other areas of the sector are standing close enough to get pelted with wayward beads. One of those is the title insurance industry. Totally dependent on the real estate market, it’s an area that gives a very clear picture of the comings and goings of real estate buyers and sellers without any complications or qualifications.
In Q2 2021, the title insurance industry busted some major premium records, ultimately generating $6.5 billion in premiums. This wasn’t due to any significant changes in premium rates -- it’s all because of real estate sales volume.
Rising real estate prices raise all boats
When we talk about title insurance, it’s important that we put that against the backdrop of the real estate market as a whole. Because title insurance is directly correlated to real estate sales, there are only two ways to have a record-breaking quarter for title insurance: Either your title insurance premium rates spike, or your real estate sales spike.
If premiums are suddenly spiking, well, that’s going to spell ongoing costs for the longer term, but if sales are spiking, that can mean a lot of different things. Luckily (or unluckily) for buyers of real estate of all kinds (and sellers, too), this particular spike is due to a massive jump in everything to do with the market.
According to the National Association of Realtors, in the second quarter of 2021, the median price of an existing single-family home rose in 99% of metro areas it tracks compared to Q2 of 2020. This resulted in double-digit price gains in 94% of those markets. Median sales prices of existing single-family homes across the board rose 22.9% to $357,900, a nearly $67,000 jump in just one year. Twelve metro areas reported price gains of over 30% year over year.
However, title insurance companies didn’t exactly lose during this period. During the first six months of 2021, the industry overall paid out $221.1 million in claims, down from $232.9 million from the same period a year prior. The top states bringing in the title insurance premiums aren’t probably all that surprising:
- Texas: $861,348,871
- California: $755,634,478
- Florida: $716,995,561
- New York: $328,137,447
- Pennsylvania: $294,361,193
“The continued strength in the purchase market and strong rebound in the commercial market continue to drive the historic volume in title insurance premiums,” said Diane Tomb, CEO of the American Land Title Association (ALTA). “Despite the recent surge of COVID-19 cases, the housing market remains robust as ALTA members across the country continue to serve the needs of their customers, protect property rights, and strengthen communities.”
The Millionacres bottom line
Given that 2021 has been a total bonkers-bananas year for real estate prices and purchases across the nation, it’s no surprise that Q2 broke records for title insurance. And, frankly, I’m glad all those houses have title insurance on them.
I’ve covered this particular subject before, and I am very much in favor of everybody getting title insurance on absolutely everything they can. It’s cheap coverage for what it does, and once you find out you need it, it’s too late to go out and start a policy. I’ve been involved in a few transactions where the title insurance actually had to be used, and it paid out a remarkable amount for how much the policy cost.
The fact that payouts were smaller in Q2 2021 than in 2020 is interesting, though not useful in any real way. I do wonder if it has to do with the fact that more municipalities are experimenting with various ways to fully digitize their title chains, making it less likely that transcription errors or other kinds of very easy-to-make mistakes will occur.
However, if you’re banking on this cash tsunami for title insurance companies to help round out your investments, I’d not take that bet with someone else’s money. The market started to hiccup a bit in the last month or two -- it might be a bit of indigestion from difficult-to-swallow housing prices -- which, of course, will affect how many title insurance policies are purchased going forward.
As far as purchases themselves go, this shouldn’t make a big difference to investors. Premiums were not significantly increased to make these figures happen; it was a natural side effect of a hot-as-the-sun real estate market in pretty much all segments. Your cost of acquisition should not change significantly.