Market Update: Resilient with Risks
Current market conditions reflect a resilient but increasingly complex macro environment. Economic data has generally held up better than expected, with steady consumer spending, a stable labor market, and continued corporate earnings growth. Financial markets have remained constructive, with equity valuations supported and interest rates reflecting expectations for continued, albeit slower, economic expansion.
At the same time, underlying risks remain. Inflation has proven more persistent than initially anticipated, driven in part by energy prices and broader supply-side dynamics. Geopolitical developments and ongoing shifts in global trade continue to introduce uncertainty, reinforcing a backdrop where inflationary pressures may remain elevated even as growth gradually slows.
This environment has challenged traditional portfolio construction. The increasing correlation between equities and fixed income has reduced the effectiveness of diversification, as both asset classes are increasingly influenced by the same macro drivers — most notably interest rates and inflation expectations. As a result, forward return expectations for traditional portfolios may be more muted, particularly after adjusting for inflation.
As investors reassess where diversification and income can be found, the focus is increasingly shifting toward real assets. This shift is not purely tactical — it reflects a broader change in the macro environment. Real assets, including energy, infrastructure, and real estate, are more directly linked to physical demand, supply constraints, and replacement costs, and can behave differently than traditional financial assets in a higher-cost-of-capital environment.
California Real Estate: Stability Beneath the Surface
Within the broader shift toward real assets, California real estate reflects many of the same dynamics shaping the national market — but in a more pronounced way due to structural supply constraints and high barriers to entry.
The California housing market is transitioning into a more balanced, but still supply-constrained environment. Following several years of rapid price appreciation and a subsequent slowdown driven by higher interest rates, recent data points to moderate price growth and improving stability rather than a sharp correction. Forecasts for 2026 call for home prices to reach new highs near $900,000 statewide, with gains occurring at a more measured pace than in prior years.
A defining feature of the market remains limited housing supply. Inventory levels continue to run below historical norms, with total listings down year-over-year and supply constrained at roughly three months. While new listings are beginning to increase modestly, overall inventory remains limited, preventing meaningful downward pressure on prices.
Demand has become more selective rather than disappearing. Higher mortgage rates have slowed transaction volume, but buyer activity remains supported by long-term fundamentals, including population concentration, income levels, and limited buildable land. Homes continue to sell near asking price, with a meaningful share of transactions occurring above list price.
These conditions have led to a market that can best be described as “frozen but firm.” Activity levels are below long-term averages, but pricing has remained relatively resilient, largely due to the “lock-in effect,” where existing homeowners are reluctant to sell and give up low mortgage rates.
At a structural level, California continues to face a chronic housing undersupply, particularly in coastal and high-demand metropolitan areas. Regulatory constraints, land scarcity, and high construction costs have limited new development, reinforcing long-term support for property values even during cyclical slowdowns.
Taken together, the California housing market reflects a convergence of key macro themes:
- Higher interest rates moderating activity, but not breaking pricing
- Supply constraints supporting long-term value
- Demand shifting, rather than disappearing
In this context, California real estate continues to demonstrate characteristics aligned with the broader appeal of real assets—namely durability, income potential, and value supported by tangible fundamentals rather than purely financial conditions.
Private Credit: Use the Right Approach
Recent developments in the private credit market have led to a more cautious tone among investors, particularly around underwriting discipline, sector concentration, and transparency of underlying assets. Much of the growth over the past decade has been concentrated in corporate lending, including meaningful exposure to sectors such as software and services, where borrower performance is closely tied to earnings growth and market conditions. As the cycle evolves, these areas are beginning to experience greater variability in outcomes.
In contrast, our approach has remained consistent. Rather than focusing on cash flow-based lending, the strategy centers on short-term loans secured by real estate, with underwriting grounded in asset value and borrower equity. This structure provides a differentiated risk profile, where repayment is anchored to the current value of the underlying asset and borrower equity, rather than dependent on projected operating performance.
The short-term nature of the loans also allows for more frequent repricing and reduced exposure to long-duration interest rate risk.
While much of the private credit market has developed relatively recently, this strategy has been in place for over two decades and managed through multiple market cycles. Throughout that time, the focus has remained on conservative loan-to-value ratios, disciplined underwriting, and a consistent approach to risk management. For investors seeking income and capital preservation in a more complex credit environment, we believe our asset-backed, short-duration approach offers a compelling alternative—one grounded in decades of consistent execution and designed to perform across a range of market conditions.
As always, we value the opportunity to connect with our investors and partners. If this update raises questions or prompts a conversation, we encourage you to reach out to your relationship manager or contact us directly at investments@stonecrest.net
Sources
- Bank of America Global Research, The RIC Report: The Lower-Tax Road Less Traveled, April 2026.
- Organization for Economic Co-operation and Development, Economic Outlook, 2026.
- Bureau of Labor Statistics, Consumer Price Index (CPI) Reports.
- BlackRock, Global Outlook 2026.
- Vanguard, Economic and Market Outlook.
- JPMorgan Asset Management, Guide to the Markets, 2026.
- Goldman Sachs, Macro and Strategy Commentary, 2026.
- Morgan Stanley, Thematic Research on Real Assets and Infrastructure.
- California Association of Realtors, Housing Market Reports, 2025–2026.
- Zillow, Home Value Index (ZHVI).
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