Q4 2025 Market Update
Financial markets closed 2025 on a constructive note despite ongoing economic uncertainty, elevated interest rates, and periodic volatility. Equity markets remained resilient throughout the year, advancing in the face of persistent inflation concerns, shifting monetary policy expectations, and geopolitical risk. Fixed income markets also delivered positive returns, supported by higher starting yields and growing confidence that the interest-rate tightening cycle has peaked. Income generation played an increasingly important role in total returns across asset classes.
Within this broader environment, the California housing market closed out 2025 on solid footing. Data from the California Association of Realtors indicated improving sales activity late in the year, with November reaching the strongest pace in several years and December closing modestly above prior-year levels. While transaction volumes remained below long-term averages, the late-year improvement suggested renewed buyer engagement following earlier periods of hesitation.
Home prices moderated modestly during the fourth quarter, reflecting seasonal trends and continued affordability pressures rather than a deterioration in underlying fundamentals. Inventory levels remained constrained by historical standards, though growth in available supply slowed toward year-end. Together, these dynamics point to a market gradually moving toward greater balance, supported by limited housing availability and sustained long-term demand across many California regions.
Against this backdrop, Secured Income Fund II continued to operate with a focus on capital preservation, consistent income, and disciplined credit selection. The portfolio remained diversified across property type, market sector, and California geography, with an emphasis on senior lien positions and conservative loan-to-value ratios on desirable properties. A relatively stable housing market, characterized by firm pricing and steady transaction activity, helped support underlying collateral values and reinforced the Fund’s margin of safety across the portfolio.
Throughout 2025, a stable real estate environment contributed to generally strong borrower performance. Preserved property values helped protect loan-to-value positions even as interest rates remained elevated, reducing the likelihood that short-term market fluctuations would impair collateral coverage. Active portfolio management and conservative underwriting further supported credit quality, particularly during periods of broader financial market volatility. The Fund maintained a selective approach to deployment, prioritizing borrower quality and asset fundamentals over transaction volume, allowing it to remain largely insulated from equity market movements while continuing to generate consistent income.
Beyond portfolio performance, 2025 was also a year of momentum and meaningful connection at Stonecrest. Alongside continued growth in our lending platform and investor relationships, we made a deliberate investment in our people and culture. Throughout the year, we brought our team together through thoughtful team-building activities that strengthened collaboration, reinforced shared values, and fostered connection beyond day-to-day responsibilities. These efforts helped deepen relationships, boost morale, and support the operational strength that underpins our investment process.
Looking ahead to 2026, expectations across traditional markets point to a more measured return environment. Equity valuations remain elevated following multiple years of strong performance, while fixed income returns are likely to rely more heavily on income than price appreciation. For California real estate, fundamentals entering the year appear relatively stable, supported by constrained housing supply and improving transaction activity. As conditions evolve, the Fund will maintain its disciplined approach to underwriting, leverage, and portfolio construction, positioning Stonecrest for continued stability and long-term success.
Sources
- California Association of Realtors – November home sales and price report – December 16, 2025
- California Association of Realtors – December home sales and price report – January 17, 2026
- Mortgage Professional – California home sales climb to three-year high – December 17, 2025
- Vanguard – Q4 2025: Markets continue to climb a wall of worry – December 31, 2025
- First Citizens Bank – Quarterly Market Review, Q4 2025 – January 2, 2026
- JP Morgan Asset Management – Review of Markets over 2025 – February 1, 2026
- Dimensional Funds – Market Review 2025: US Stocks Ride Rocky Road to a Third Straight Year of Gains – January 6, 2026
- Bank of America Global Research – BofA Global Research Investment Committee (RIC) Report: Year Ahead 2026: The adopters and the dollar – December 10, 2025