China’s benchmark Shanghai Composite Index tumbled 8.5 percent today and the U.S. markets followed suit, with the Dow Jones Industrial Average shedding 3.6 percent to 15,871.35 and the S&P 500 closing at 1,893.21, down 3.9 percent for the day and a technical correction of 10 percent over the past week.

The Shanghai Index has erased all gains made in 2015 and today was dubbed ‘Black Monday.’  The Dow Jones Industrial Average is down 10.9 percent since the beginning of the year.

Reiterating our headline from early last month: China’s Stock Market Is Tanking, Will It Weigh On Local Real Estate?

UPDATE (8/25): The Shanghai Composite dropped another 7.6 percent today. And while the U.S. markets opened up, the Dow closed down 1.29 percent and the S&P 500 fell another 1.35 percent. The NASDAQ closed up down 0.44 percent.

UPDATE (8/26): While the Shanghai Composite dropped another 1.3 percent today, the U.S. markets closed up around 4 percent, with the Dow at 16,285.51 (up 3.95 percent), the S&P 500 at 1,940.51 (up 3.9 percent), and the NASDAQ at 4,697.54 (up 4.24 percent).

UPDATE (8/27): The Shanghai Composite finally reversed course and gained 5.34 percent today while the Dow gained 2.27 percent to close at 16,654.577, the S&P 500 gained 2.43 percent to close at 1,987.66, and the NASDAQ closed up 2.45 percent at 4,812.71.

Comments from Plugged-In Readers

  1. Posted by Amewsed

    It was an interesting morning to say the least. Last night, the Dow futures were down about 600 points and this morning dipped to 1K points with wild up and down movements all day. European markets stayed down. I didn’t see any blood running down the street and business here is as usual. Continue to wait before buying?

  2. Posted by JR "Bob" Dobbs

    Really pissed I didn’t plow my entire net worth into Apple at 92 this morning! At least my bond funds have been strong . . .

    I’m not sweating this. But if I were dependent on cheap, easy money, I would start looking for a plan B.

    • Posted by pringles

      It ensures we’ll have at least a few more months of easy startup money with interest rates likely not to rise this Fall. VC’s have been hinting to their companies that 2015 is the last year for easy seed money before bonds become better investments.

  3. Posted by Michael

    Twitter has me nervous. Trading below IPO and half the 4,000 employees are out of the money, hope they didn’t borrow against shares. Apple bounced this morning but still down 20 percent in a month, no gain for the year. Yahoo trading near two-year low, hiring has slowed.

    • Posted by Easy come, easy go.

      Nothing to be worried about. Twitter still has several years worth of cash at their historic rates of negative profit. So far, they’ve only lost about two billion dollars (retained earnings). As they burn through the rest of the money invested their stock value should trend low enough for a buyout by a cashflow positive company with competent management. They have more value as an operating service than liquidation. Not a pets.com. They are losing hiring and retention leverage based on post-ipo options, but then where are all their weenies going to go with the ipo window closing and unicorn bubbles sagging.

      • Posted by Wonkster

        “but then where are all their weenies going to go with the ipo window closing and unicorn bubbles sagging.”

        Somewhere other than here? Please?

    • Posted by anon

      hiring has slowed? wasn’t the headline the other day was an all time high for local employment?

    • Posted by EBGuy

      Twitter? From what I can tell, all the interesting action is at Square (which has a Twitter connection in Jack Dorsey). Will the investment bankers be able to foist Square’s IPO on an unsuspecting public given current market conditions? From what I can tell, Square needs the cash infusion from an IPO to continue as an ongoing concern. YMMV.

  4. Posted by eddy

    This will absolutely impact local area housing.

    • Posted by soccermom

      I don’t doubt it, and I wonder how a downturn would look this time. I don’t think the perceived “lower quality” neighborhoods have been buoyed as much by easy money as last time around. To me that suggests that you won’t see the same divergence of Pac Hts dropping a little and Bayview dropping a lot (percentage-wise.) Yet Bayview has rallied back to where it was before ’08. Does the whole city get marked down?

      I would suspect that it makes the $7mm Noe houses less bankable, if fewer people get 8 figure payouts at liquidity events. Or maybe a few will and those houses will stay expensive.

      I like the idea of $800K to 1.2mm houses holding value better in the face of a slowdown. They seem like the biggest beneficiaries of supply limitations.

  5. Posted by Willow

    Those condos/apartments by Rincon Hill can’t go up soon enough! This may be a short term correction at the moment but there going to be lots of new condo/apartment inventory hitting the market real soon.

    • Posted by san FronziScheme

      My new bearish self says the last Rincon Hill tower will be the sign the market will start correcting.

  6. Posted by Amewsed

    Dow futures are up 200 points at 10:40 PM. Europeans markets futures are trending much lower since their major trading partner is China. Their markets will open in a few hours and if they close much lower, Dow will open lower. VIX index is high around 40.

    Folks can always set their own buy price target and number of shares desired of a specific stock with their broker. It eliminates the need to constantly check the stock price.

  7. Posted by anon

    We’re at the peak right now. Interesting times ahead. Earnings are not going to look good over the next year or so and recession is imminent. Can’t wait to see a bunch of worthless startups evaporate when the easy money is gone.

    • Posted by anon

      A recession is only imminent because of the Fed’s insane hawkish stance. If they really believed their inflation mandate we would have been talking about QE4 and QE5 for the last two years to get inflation back up to 2%+.

  8. Posted by GoBlueInOakland

    Dead Cat bounce today on the Street.

  9. Posted by confused renter

    Who wants to take bets where Shanghai will open tonight?

    -3%

    • Posted by EcceMorons

      Impossible to say – the Shanghai market is FAR from a “free market”. Government buying, laws against short selling, many stocks have their trading halted every day because they are “limit down”, it’s even illegal, in many cases, to SELL your stock right now if you own enough!!!

      Shanghai seems like a classic “pump and dump” – cruising along around 2,000, then the “little guys” started pouring in, quickly raising it to 4,000 – now it’s corrected down to 3,000, and the only reason it isn’t lower in the heavy hand of the Chinese Government abolishing selling.

      My guess is that the Big Fish knew exactly what the game was – and sold into the Bubble. The little fish are getting eaten alive now.

      • Posted by Amewsed

        Well put and spot on. The problem is all the little guys in China are the aspiring middle class and their disposable income (which companies are relying on for consumption) has evaporated.

  10. Posted by SocketSite

    UPDATE: The Shanghai Composite dropped another 7.6 percent today. And while the U.S. markets opened up, the Dow closed down 1.29 percent and the S&P 500 fell another 1.35 percent. The NASDAQ closed up down 0.44 percent.

  11. Posted by johny

    China is lowering interest rates and the Fed wont raise theirs in 2015, so the Dow will be above 17,000 before the end of the year.

    I don’t think any of this will affect RE prices in the City, however.

    • Posted by san FronziScheme

      SF’s current [Real Estate] Gold Rush is based on 1) ongoing supply issues we have had for decades now 2) a massive capital influx into tech which is reflected in both high incomes (high rent) and great liquidity (high resale prices).

      This capital influx is based on both reality and hopes. AAPL still prints billions. So does GOOG. But others like FB or TWTR are still not where they promised they would be. Then there’s all the large newcomers. Airbnb must be doing pretty well, and maybe Uber as well. But for a lot of tech, they’re still in the “spend to grow” phase of the business, not unlike the dot com bubble of yesteryear. Yes this is a more mature market, but the valuations and expectations are very high and it wouldn’t take a genius to figure that a major stock market crash would give VCs pause before they inject more money into start-ups, however mature they are.

      Then start-ups will have to live without crutches and on their own merits, in what could possibly be a small recession.

      • Posted by EcceMorons

        True.

        In my own experience (reviewing rental applications), I see a ton of 20-somethings moving to SF who are in “tech” – but not it “tech companies” – they’re working in “regular companies” but handling the tech and social media work within those regular companies. Their jobs aren’t dependent on VC money.

        • Posted by san FronziScheme

          My tenants are still mostly in the top shelf tech companies. A downturn would slow down the hiring which would affect the bulk of my corporate clients (relocations). I still get a good number of other non techies, but this would have an impact.

        • Posted by GoBlueInOakland

          If their jobs are mostly providing client services to tech companies that are dependent on VC, then yes, those jobs ARE dependent on VC. If anything, the concentration of the SF job base in tech startups has a multiplier effect – as the boom booms, its really boomy. When it busts, its really bust-y.

      • Posted by GoBlueInOakland

        I’m not even sure about Uber and AirBnB. Both companies involve the purchase of non-essential services – at the end of the day, its a taxi company and a hotel company. When the business cycle turns and the next recession hits, consumers will first scale back hard on indulgence purchases – travel, dining out, etc. You don’t need to rent a room on AirBnB if you aren’t going anywhere. Uber – like taxicabs – is probably a bit more insulated – but even there, as people scale back, they will opt to take the bus/subway when they need to get across town to the restaurant/club/airport – or just stay home.

        • Posted by san FronziScheme

          Well, in times of recessions, people will go for the cheaper alternatives. If a business traveller was indulging into a $500 room for a 1-week convention he might want to rent a very decent airbnb pad for $2000 a week and bunk with a co-worker. The thing with many airbnb places is that they have very low break-even threshold. Heck, I have no mortgage whatsoever myself. I could lower my price by 75% and still break even waiting for the storm to pass.

          The same could probably be true for Uber. With very little in terms of initial investment, they could undercut taxis even more.

          • Posted by Jake

            In recessions, hotels lower prices. They have established inventory. They won’t just let their business go to airbnb. SF hotels have had low vacancy rates for years. If demand drops, vacancies rise, and prices lower, the potential gain for individuals to host for airbnb will decline. They will lose business, even if they don’t lose market share.

            There is nothing intrinsically cheaper about providing hotel service via airbnb. They have just been doing it by pushing costs off on their “hosts” and ducking costs by operating illegally. Hotels are highly differentiated and offer a range of cost, quality, and service. The primary niche airbnb has filled in SF is outside the law. When there is more economic pressure on everyone, their enemies will have even more leverage on the various levels of government to enforce and tighten the laws.

            Hopefully, a US recession is years away and also hopefully by then aribnb and nearly all of their hosts will be operating within the laws.

  12. Posted by SF Is Cheap

    Can you imagine having all your net worth in the stock market instead of San Francisco property? No wonder why property rules. There is now a wave of NEW money from the stock market looking to buy SF property b/c people want tangible assets.

    SF property will probably accelerate in price as a result of a market correction.

    • Posted by soccermom

      I disagree, but applaud your enthusiasm. Assets prices are correlated.

      • Posted by SFrentier

        Yeah, im kinda in the middle of you two. First off, it’s premature to talk about the “R” word yet. So far it’s a stock market correction…no one ever died from one. Little attitude adjustment in stock valuations, oil and some raw materials drop (a boost to the economy), housing keeps humming along, Europe weak, China down, samo samo wrt the fed and interest rates. All equal a continued weak expansion for the USA. I think it’ll follow this path for awhile. SF RE gains will probably slow (they should) but not go into negative territory. Demand is still high and inventory will be low. Not sure about rents on all their and coming luxury towers: how many Sf noobs want to spend $4000 for a studio, or $6000+ for a 2 BR? That fluff may take a beating, but bread and butter SF rentals will probably weather this fine.

    • Posted by spencer

      The stock market has consistently outperformed SF RE market. I would much rather be in stock market

      • Posted by JR "Bob" Dobbs

        True, especially when you also factor in the extremely high holding, buying, and selling costs of real estate (with stocks, all of these costs are pretty close to zero). If it were an either/or situation, stocks are the better move. Nevertheless, it’s wise to have a diverse portfolio, and real estate is a good component of such a portfolio.

        • Posted by san FronziScheme

          Yes, but RE allows you to purchase $10 of property with $1 or $2 in actual cash. This is where RE can beat stocks by a wide margin.

          Say you had put down $200,000 in 2010 to purchase a $1M condo. Your holding costs would be ITI (principal is essentially paying yourself back) in the range of $50K/year, or 250K over 5 years.

          Today this condo has appreciated by roughly 80%, and your net is 1M equity minus the 250K holding costs or $750K

          from $200K to $750K. The same $200K invested in the SP&500 would have brought your net to $360K to $380K

          There past 3 years of appreciation were exceptional, but RE can be a good investment with the right timing.

          • Posted by san FronziScheme

            One element I omitted is that you can rent out the condo, and over 5 years you would have nixed the holding costs.

          • Posted by JR "Bob" Dobbs

            Right, but if you put 20% down and the value declines by 20%, you have lost 100% of your investment. Also, you pay 100% of the the holding/purchase/sale costs even if you only put 20% down, which just makes those costs higher as a percentage of the investment. You put 20% down, then pay 1% to buy and 6% to sell, and you transaction costs are a full 1/3 of your investment (terrible). You put 20% down, and your 1% property tax become a 5% tax on your equity every year. Ditto insurance and maintenance. Sure, leverage can be great if the market rises. Otherwise, it simply multiplies the pain.

          • Posted by san FronziScheme

            Agreed 100%. I wouldn’t buy today because the likelihood of the scenario you described is very likely.

            Heck, I am renting in LV a sweet pad from a bubble-topper who is still 30% to 40% underwater. On margin, with holding costs and depressed rents, that’s a slow cash drain.

            But after the next downturn, when everyone is bearish about RE like in 2009-2011, heck yeah.

          • Posted by JR "Bob" Dobbs

            We are on the same page. I bought during the last downturn and will up my stake in real estate during the next one (generally REITs, not individual properties which are not liquid enough for my taste).

        • Posted by moto mayhem

          i would rather own REITs than real estate. The stock market has crushed RE over the long term, even factoring in leverage

  13. Posted by SocketSite

    UPDATE (8/26): While the Shanghai Composite dropped another 1.3 percent today, the U.S. markets closed up around 4 percent, with the Dow at 16,285.51 (up 3.95 percent), the S&P 500 at 1,940.51 (up 3.9 percent), and the NASDAQ at 4,697.54 (up 4.24 percent).

  14. Posted by Amewsed

    Too much volatility for my taste. I stayed on the sidelines. If I was 10 years younger and had more free time (nope) I would have enjoyed the extreme roller coaster ride.

  15. Posted by SocketSite

    UPDATE (8/27): The Shanghai Composite finally reversed course and gained 5.34 percent today while the Dow gained 2.27 percent to close at 16,654.577, the S&P 500 gained 2.43 percent to close at 1,987.66, and the NASDAQ closed up 2.45 percent at 4,812.71.

  16. Posted by SFrentier

    It’s over.

    Sorta

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