As a previous DVC owner..What is the main cause for prices to drop..

[HFC1969]

Im just curious....

Im seeing prices so low its scary...

Why?

 

[pmaurer74]

I am wondering as well as a prospective buyer. I only know what AKV and BLT was 2 years ago. I am unsure whether waiting is better or not (not that I have a choice right now). Maybe because of the economy people cannot afford the membership anymore.

 

[JimC]

My top three reasons:

Less aggressive use of ROFR by Disney

Declining years on older resort contracts

Bad market for timeshare industry

 

[disneynutz]

More supply than demand.

Caused by:
No ROFR.
Economy.
DVC Management or lack there of.
Resale restrictions.

Bill

 

[Lewisc]

Time shares traditionally sell in the resale market for cents on the dollar. The question is really why did DVC hold its value much more then other timeshare properties. The answer is ROFR. It caused the properties to hold value and is now causing properties to drop to their true value.

 

[Brian Noble]

It's pretty simple. The supply of resale deeds is growing faster than the demand for them is. As a result, prices go down.


I believe (quite strongly) that the effective abandonment ROFR was the effect, not the cause. The cause was sharply increasing supply relative to demand, in part through natural growth of the system, and in part through the financial crisis putting stress on a lot of owners who still owed on their DVC loans. Disney could buy those back, but only once a willing seller and buyer met, so the prices still follow the overall supply/demand curve of the market. What's more, they would still have to resell it to someone else---but they had their own inventory to sell as well.

If you go back and look at the old ROFR/sales threads, you will see prices started to decline significantly even before ROFR was essentially stopped. What's more, it is clear that Disney believes the resale market presents them challenges, otherwise they would not have created resale restrictions. Yet, they are not using the one tool that everyone thinks would cause resale prices to recover to narrow the gap between resale and retail---which suggests to me that the costs of ROFRing enough to move the market have been judged to be just too high, even for Disney's deep pockets.

 

[dmank]

It's pretty simple. The supply of resale deeds is growing faster than the demand for them is. As a result, prices go down.


I believe (quite strongly) that the effective abandonment ROFR was the effect, not the cause. The cause was sharply increasing supply relative to demand, in part through natural growth of the system, and in part through the financial crisis putting stress on a lot of owners who still owed on their DVC loans. Disney could buy those back, but only once a willing seller and buyer met, so the prices still follow the overall supply/demand curve of the market. What's more, they would still have to resell it to someone else---but they had their own inventory to sell as well.

If you go back and look at the old ROFR/sales threads, you will see prices started to decline significantly even before ROFR was essentially stopped. What's more, it is clear that Disney believes the resale market presents them challenges, otherwise they would not have created resale restrictions. Yet, they are not using the one tool that everyone thinks would cause resale prices to recover to narrow the gap between resale and retail---which suggests to me that the costs of ROFRing enough to move the market have been judged to be just too high, even for Disney's deep pockets.

I agree with this entire post. Very well stated!!

 

[Caren90]

It's pretty simple. The supply of resale deeds is growing faster than the demand for them is. As a result, prices go down.


I believe (quite strongly) that the effective abandonment ROFR was the effect, not the cause. The cause was sharply increasing supply relative to demand, in part through natural growth of the system, and in part through the financial crisis putting stress on a lot of owners who still owed on their DVC loans. Disney could buy those back, but only once a willing seller and buyer met, so the prices still follow the overall supply/demand curve of the market. What's more, they would still have to resell it to someone else---but they had their own inventory to sell as well.

If you go back and look at the old ROFR/sales threads, you will see prices started to decline significantly even before ROFR was essentially stopped. What's more, it is clear that Disney believes the resale market presents them challenges, otherwise they would not have created resale restrictions. Yet, they are not using the one tool that everyone thinks would cause resale prices to recover to narrow the gap between resale and retail---which suggests to me that the costs of ROFRing enough to move the market have been judged to be just too high, even for Disney's deep pockets.

I agree with this post but would also add: Due to the current economic climate there must be many people who have simply "walked away" from their contracts leaving Disney with "free" points and therefore reducing the need to ROFR. Why buy the cow (more expensive points through ROFR) when you are getting the milk for free(DVC contracts and points essentially being handed back in). I don't think we will see strong movement on ROFR in the near future (if ever again) since; 1) SSR is sold out and due to its size, the potential for default owners is possibly huge, and as stated above 2) There are too many points in circulation which means DVC needs many more potential buyers (a tougher sell right now).

Stephen

 

[DebbieB]

I think all the new resort building has an effect, the market has become saturated.

I think part of the resale restrictions came about because the rooms sent to CRO can't be rented at a rate DVC needs for the trades. It's hard to compete with big room discounts and free dining. They also cut back on cruise room availability at the same time. They saw it as an opportunity to cut back on the number of trades at the same time as encouraging direct sales.

 

[crisi]

I agree with this post but would also add: Due to the current economic climate there must be many people who have simply "walked away" from their contracts leaving Disney with "free" points and therefore reducing the need to ROFR. Why buy the cow (more expensive points through ROFR) when you are getting the milk for free(DVC contracts and points essentially being handed back in). I don't think we will see strong movement on ROFR in the near future (if ever again) since; 1) SSR is sold out and due to its size, the potential for default owners is possibly huge, and as stated above 2) There are too many points in circulation which means DVC needs many more potential buyers (a tougher sell right now).

Stephen

Not just SSR, the overall inventory is glutted. And DVC keeps building more. And the original owners for the older resorts have owned a long time - long enough for their lives to significantly change.

There are also the indirect costs, people are reluctant to buy a timeshare with fuel costs uncertain, for instance. Maybe they can afford the projected dues, but if their $300 a person airfare goes up to $500 a person, they'll have a problem.

 

[Breyean]

Not just SSR, the overall inventory is glutted. And DVC keeps building more. And the original owners for the older resorts have owned a long time - long enough for their lives to significantly change.

There are also the indirect costs, people are reluctant to buy a timeshare with fuel costs uncertain, for instance. Maybe they can afford the projected dues, but if their $300 a person airfare goes up to $500 a person, they'll have a problem.

Just as the sheer size of SSR changed the game for DVC, I think another sea change will be coming if Aulani does well and DVC, running out of options at WDW or just trying to diversify, build more resorts outside the previously closed WDW DVC closed system.

Until Aulani, HHI and VB were a drop in the bucket compared with overall DVC ownership (you can throw in VGC also). Thus, when members wanted to visit WDW, while certain resorts might be difficult to get at certain times, it was pretty mush offset by availability at other resorts, as members were dealing pretty much with a closed system - the vast majority of points were at WDW - you just had to find the open resort.

With Aulani the game is changing. A huge number of points sold there, and when we took a tour at DLR the guide there used the idea of using the Aulani points to visit WDW periodically. If Aulani buyers do that, they will competing for rooms previously available for WDW DVC owners. Once Aulani owners book at WDW, that opens up space at Aulani, but that doesn't help those who want to go to WDW.

If DVC builds more resorts outside WDW, this situation will only get worse, and competition at 7 months for rooms at DVC will intensify. And the rooms going to non-WDW DVC owners will directly reduce what's available to WDW DVC owners.

The system will no longer be a closed one, and since WDW will always be a big selling point for DVC, as it differentiates it from other timeshares, competition might really heat up at 7 months for rooms, way beyond what we experience now.

 

[pmaurer74]

Not just SSR, the overall inventory is glutted. And DVC keeps building more. And the original owners for the older resorts have owned a long time - long enough for their lives to significantly change.

There are also the indirect costs, people are reluctant to buy a timeshare with fuel costs uncertain, for instance. Maybe they can afford the projected dues, but if their $300 a person airfare goes up to $500 a person, they'll have a problem.

I admit that I am concerned about this as we live 16 hours away from Orlando. I suppose we could always drive and go every 2-3 years instead of every year if this happens but the uncertainty is an issue.

 

[JimMIA]

I think it's all of the above, and I would add the reliance of DVC on financed sales from the beginning of SSR sales forward.

Since SSR opened, the figures I've read indicate that more than 75% of their sales have been financed. Heavy financing increases the cost of ownership significantly and also has resulted in a large number of defaults and foreclosures. I suspect a LOT of people lost a LOT of money on their DVC contracts over the last 2-3 years.

I also think resale prices were artificially-inflated by the frequent use of ROFR and the continual rise in new construction points costs. Because of those two factors, for a number of years DVC owners who bought early actually sold for profits.

When the economy turned south, DVC was hit by a triple-whammy. New sales demand reduced, financed contracts got dumped back in DVC's lap, and DVC didn't have the cash to maintain ROFR levels even if they had wanted to.

I think they initially backed away from ROFR out of necessity, but have now realized it didn't affect their sales as much as they assumed. I'm sure the vast majority of their direct sales are to people who don't even know the resale market exists. So I think they are pretty much done with ROFR.

I don't think the resale prices are "scary." I think they are where they should be after years of being artificially inflated. And I think they will continue to drift downward to even lower levels.

 

[abner1776]

Also built into the price decline is the normal purchase price amortization each year in which you own the contract. My annual amortization is around $2.50/pt. so if nothing else happened to effect the value of my contract that I purchased in 2006, the value of my contract would have decreased by $15 from what I purchased it at.

This amortization will continue until my contract runs out.

With the current market being what it is, there are other factors influencing the value of my contract far more than the annual amortization, but hey...$15 is $15.