Real estate bubble? Will resale prices drop?

[deedeetoo]

I know this won't be a popular topic here, but my dh is concerned about buying now because of the current situation with real estate. He thinks that real estate prices (including vacation real estate like timeshares and DVC) are at all-time highs and they will come down. He thinks this may be a bad time to buy. Indicators are that the economy is heading into a recession and he thinks more people will be forced to sell, flooding the resale market and causing prices to fall.

Where we live, people are having a hard time selling real estate. Houses are sitting, people are being forced to cut prices, no one is showing up at open houses, etc. My next door neighbor has had his house on the market for 3 months and 5 people have been by to see it.

I know historically DVC prices directly from Disney have consistently gone up, but does anyone know if the resale market has taken hits during past economic downturns?

 

[utahkennedys]

Really, the price of the resales is contingent on what will pass ROFR, and I highly doubt Disney is going to start letting resale contracts pass for less and less -- they just keep rising. The "bubble" may affect timeshare/vacation interests where there is no ROFR process, but no matter what someone lists a DVC resale price at, it still has to get through ROFR. I have seen some people looking to pay in the $60 range -- they may get extremely lucky and find a desperate seller, but it will never pass anyhow.

 

[Chuck S]

Historically, you can not compare timeshare sales or resales to the overall housing market. The vast majority of timeshares lose at least 50%, more like 70%, of their "market value" on resales vs. buying direct from the developer. DVC has kept the resale prices at a somewhat artificial high since DVC began through the use of their Right of First Refusal...DVC would purchase back any resale where they considered the agreed upon price "too low". As to whether that will continue as the original DVC resorts get nearer to the date where the properties revert to Disney (2042) is an unknown at this point. The best use of DVC is as it was originally intended...a pre-paid room at a DVC resort by the purchaser, their families and friends.

 

[deedeetoo]

The best use of DVC is as it was originally intended...a pre-paid room at a DVC resort by the purchaser, their families and friends.

I don't question this. I just wonder if we can buy that prepaid room for less money if we wait awhile.

Disney is buying a lot of lower price deals through ROFR now but they also seem to be turning them over to members requesting more points fairly easily. What if disposable income starts dropping, and less members look to purchase additional points? What if people can't or won't buy at Disney's price of $95? Will they continue to exercise ROFR as much as they do now? How high will they let their inventory get?

 

[Chuck S]

But on the flip side...the longer you wait to purchase, the less actual use/value DVC will be to you, as they are not a perpetual timeshare, but have a definite end date. And the harder it will be to justify the price vs. time remaining in the program.

 

[JimMIA]

Where we live, people are having a hard time selling real estate. Houses are sitting, people are being forced to cut prices, no one is showing up at open houses, etc. My next door neighbor has had his house on the market for 3 months and 5 people have been by to see it.

Your local experience is probably not representative of the entire market. The Census Bureau estimates that Mass population grew only .8% between 2000 and 2005, by far the lowest growth in the NE and one of the lowest in the country. Plus your taxes are very high, which probably makes your market much tougher than most states.

Our property values have doubled in the last five years, and it doesn't seem to be a bubble. A severe, prolonged recession surely would cause some shakeout, but we haven't seen any signs of it happening yet.

All that said, I agree that DVC resale prices have nothing to do with normal real estate prices.

 

[JimFitz]

I know this won't be a popular topic here, but my dh is concerned about buying now because of the current situation with real estate. He thinks that real estate prices (including vacation real estate like timeshares and DVC) are at all-time highs and they will come down. He thinks this may be a bad time to buy. Indicators are that the economy is heading into a recession and he thinks more people will be forced to sell, flooding the resale market and causing prices to fall.

Where we live, people are having a hard time selling real estate. Houses are sitting, people are being forced to cut prices, no one is showing up at open houses, etc. My next door neighbor has had his house on the market for 3 months and 5 people have been by to see it.

I know historically DVC prices directly from Disney have consistently gone up, but does anyone know if the resale market has taken hits during past economic downturns?

Disposable income is definately going to dry up. Homes will not appreciate as quickly, and people can not take out equity lines as easily as in the past. However, I do not think it will impact Disney sales. They may slow, but they will not plummet. I would think that you should buy now and enjoy it. If you will be stretching it financially then I would definately wait and save the cash and just rent points for the time being.

 

[JimMIA]

Disney is buying a lot of lower price deals through ROFR now but they also seem to be turning them over to members requesting more points fairly easily. What if disposable income starts dropping, and less members look to purchase additional points? What if people can't or won't buy at Disney's price of $95? Will they continue to exercise ROFR as much as they do now? How high will they let their inventory get?

I think Disney HAS to maintain resale prices via ROFR in order to be able to sell any SSR at profitable prices. I also think Disney has quite a bit of capacity for purchasing ROFR inventory. I'm not sure if they can do this, but if Disney can rent DVC rooms for the points they hold in their ROFR inventory, it's not like the points are just sitting there. If they can rent that way, you might see CRO prices go down to be more attractive, but ROFR levels being maintained.

What might happen -- and this would have more effect -- is a severe recession would cause disposable income to go down and many DVC owners may re-think their DVC ownership...either because they can't go any more, or because they get laid off. That might cause a glut in the resale market and cause selling prices to decline. But I think a lot of those prices would be paid eventually by Disney ROFRing low-priced contracts.

 

[crisi]

Housing bubbles are traditionally regional.

If a recession/depression hits bad enough to impact DVC sales, you may not be in a position to purchase or travel anyway......if people start selling because they can't afford to own/travel - you may not be exempt from that. I'm figuring if it gets that bad, we'll be lucky to use the points we have.

 

[rocketriter]

I'm not sure there's a valid connection between housing prices and DVC time-share prices. It would be more meaningful to look at a connection between DVC prices and hotel room (and suite) prices on Disney property. If prices at the deluxe hotels were to tumble, then DVC value would go down as well. But that's not likely unless something the scale of The Great Depression hits us. Otherwise, as long as DVC gives better accomodations than the deluxe hotels for less money, frequent WDW travelers will continue to buy into DVC no matter how long the house next door sat on the market.

 

[JimFitz]

I think many people have used equity in their homes to buy DVC. Now that the housing market is stabilizing, we will see less buyers of DVC.

 

[calypso*a*go-go]

How much could you save by waiting...10%, 20%? And how many times will you go to WDW while you're waiting and give money to CRO that could have been applied to a DVC membership instead? I really feel that anyone that goes to WDW on a regular basis and stays in moderates or above should seriously consider buying into DVC. Even if you had to resell the contract and lost money on it, it probably would still equal what you would have spent booking through CRO. Also, how many people passed on the opportunity to buy into DVC when it first started and are now kicking themselves because they waited, assuming the value would go down instead of up? Bottomline, if you want a membership, go for it. If you're on the fence...just forget about it and move on.

 

[deedeetoo]

Well DH has concluded that he doesn't think it's a smart thing to do right now, but he figures that I can't lose more money buying DVC than he's lost in the stock market lately so if I want to do this he will agree to go along.

 

[notdaitcher]

Historically, you can not compare timeshare sales or resales to the overall housing market. The vast majority of timeshares lose at least 50%, more like 70%, of their "market value" on resales vs. buying direct from the developer. DVC has kept the resale prices at a somewhat artificial high since DVC began through the use of their Right of First Refusal...DVC would purchase back any resale where they considered the agreed upon price "too low". As to whether that will continue as the original DVC resorts get nearer to the date where the properties revert to Disney (2042) is an unknown at this point. The best use of DVC is as it was originally intended...a pre-paid room at a DVC resort by the purchaser, their families and friends.

I totally agree with Chuck on this. DVC will ensure resale values stay high for some time to come. Besides buy with the intent to use not woorying about resales. DVC has a proven track record with this. Go in with confidence, your DVC will have value for quite some time.


DAVE

 

[Wish I lived in Fl]

House prices (same house now compared to a yr. ago) in my town have dropped 20% according to local COC report. Wages the same as 9 years ago before house prices tripled.We have a lot of retirement and second homes so when the market slows elsewhere it stops here.

Don't think we are entering a boom but rather economically tough years with stagflation. Supposedly a lot of consumer spending was financed by home equity loans in the past couple of years which is coming to a close.

I am hoping to buy DVC in two years but would be willing to drive down if couldn't afford the airfare. Mom is retired in Florida so would have to go visit Grandma, right? And then add on a week at WDW!

 

[Blue&Gold]

Indicators are that the economy is heading into a recession and he thinks more people will be forced to sell, flooding the resale market and causing prices to fall.

This will certainly come as a shock to the people at the Bureau of Economic Analysis at the Department of Commerce... From their latest (5/25/06) report on the Gross Domestic Product

" GROSS DOMESTIC PRODUCT: FIRST QUARTER 2006 (PRELIMINARY)

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 5.3 percent in the first quarter of 2006, according to preliminary estimates released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 1.7 percent.

The GDP estimates released today are based on more complete source data than were available for the advance estimates issued last month. In the advance estimates, the increase in real GDP was 4.8
percent (see "Revisions" on page 3).

The increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, equipment and software, and federal government spending. Imports, which are a subtraction in the calculation of GDP, increased.

The acceleration in real GDP growth in the first quarter primarily reflected an upturn in PCE for durable goods, an acceleration in exports, an upturn in federal government spending, and an acceleration
in equipment and software that were partly offset by a downturn in private inventory investment.

Final sales of computers contributed 0.05 percentage point to the first-quarter growth in real GDP fter contributing 0.33 percentage point to the fourth-quarter growth. Motor vehicle output subtracted 0.11 percentage point from the first-quarter growth in real GDP after subtracting 0.64 percentage point from the fourth-quarter growth. "


THE SKY IS FALLING! THE SKY IS FALLING!

Just for clarity... A recession occurs when GDP shrinks, not when the rate of growth slows.

There is no greater proof of the "value" of DVC than the fact that Disney continues to exercise ROFR. It's the real estate version of a corporation buying back stock. They only do it if they can make money... Either they profit from re-selling the points themselves, or they support SSRs price to the level that overcomes the losses on the ROFR.

 

[JimMIA]

Just for clarity... A recession occurs when GDP shrinks, not when the rate of growth slows.

Actually, the definition of a recession is GDP declining for two consecutive quarters.

A simple decline in GDP for one quarter is only catestrophic to news analysts selling Viagra and politicians from whichever party happens to be out of power at the moment -- and it's ALWAYS the other party's fault.

 

[Blue&Gold]

Actually, the definition of a recession is GDP declining for two consecutive quarters.

I stand happily corrected.

 

[Wish I lived in Fl]

The official definition of recession reminds me of the saying "Lies, Damned Lies, and Statistics".

People here have less money free to spend now than a year ago. Or actually more in the whole than a year ago and digging faster.

I would still buy DVC now if you aren't relying on the purchase money for other uses and would be willing to spend more for transportation there and back if necessary.

 

[Greg K.]

My two cents:

I haven't noticed DVC resale prices falling over the three years that I've been a member. Quite the opposite, in fact.

Which is one reason why I have joined the chorus of otherwise-happy DVCers who wail: "I only wish I'd bought in sooner!"

When I think of all the money I coughed up for YEARS at the deluxe resorts...

I pathetic.