Comparison of DVC retail prices to Case-Shiller home prices, 1991-Present (bubbly?)

[gkrykewy]

We're considering a small add-on to our AKV contract, and as part of our consideration I wanted to take a look at DVC prices over time, as a way to assess how likely it is that the currently depressed resale prices are an indicator of things to come re: DVC (i.e., I wanted to see whether it looked like DVC point prices represented a bubble similar to home prices - whether DVC prices had gotten unsustainably high as a result of easy credit).

So I put together a quick graph comparing DVC retail prices to the Case-Shiller 20-city Home Price Index for 1991 through early 2009. The numbers are a LITTLE rough, but good enough for me. Where DVC maximum retail prices changed in a given year, I used the average value for that year.

Below is the resulting chart - I thought others might find it interesting. In short, doesn't look like a bubble. Looks like steady, fairly linear growth, which is more likely to be sustainable moving forward

(note: these are nominal values, not inflation-adjusted)

 

[tjkraz]

And it looks like the two would have followed very similar trends if not for that completely ridiculous housing bump in 2004-06.

 

[Brian Noble]

It's also worth thinking about whether or not it makes sense to compare overall housing prices to DVC. Shelter is a necessity (either through renting or owning). DVC is a purely discretionary luxury purchase. On the one hand, it's easier to do without DVC than to do without basic housing. On the other, DVC attracts a subset of the overall market.

There are a lot of other structural differences between the two markets. It's hard to monetize equity in DVC, but it was easy to do so in principal real estate via home equity lines, etc.

 

[gkrykewy]

It's also worth thinking about whether or not it makes sense to compare overall housing prices to DVC. Shelter is a necessity (either through renting or owning). DVC is a purely discretionary luxury purchase. On the one hand, it's easier to do without DVC than to do without basic housing. On the other, DVC attracts a subset of the overall market.

There are a lot of other structural differences between the two markets. It's hard to monetize equity in DVC, but it was easy to do so in principal real estate via home equity lines, etc.

Correct, but I was simply looking to evaluate the price trajectory for DVC in comparison to a known bubble that was occurring at generally the same time. The two assets are somewhat related, with the caveats you've mentioned. For example, we know from the DIS that some number of DVC members used home equity extractions to make their DVC purchases. If the home equity "wealth" was hallucinated/exaggerated for a period of time, I wondered whether that trend had had an artificially inflating influence on DVC point prices.

 

[CarolA]

I don't know about where you live, but... here no one does ROFR on my home. I think that means that right now DVC is reselling at a higher % of cost then my home would.

 

[Brian Noble]

but... here no one does ROFR on my home. I think that means that right now DVC is reselling at a higher % of cost then my home would.

Depends on where you live. My home is down about 12% from its purchase price four years ago. Four years ago, SSR was $95. Contracts that are not stripped are passing ROFR at $68, for a decrease of about 25-30%. If you include incentives, SSR might have been as low as $80 net cost four years ago. Still a 15% drop.

Someone pointed me at a paper recently, from an economics journal, that argued that ROFR actually decreases market price slightly in an otherwise efficient market. The argument was: ROFR effectively removes the rights-holder from the price bidding process. The rightsholder doesn't have to pay *more* than your otherwise-highest bidder, but only *as much as* your otherwise-highest bidder. So, that artificially decreases demand. It was a very interesting read. If I can dig it up, I'll post a link.

Of course, for most timeshares, the market is anything but efficient. DVC resales are a relatively liquid market, but it's still not clear to me that it's liquid enough to be "efficient." In that setting, it's less clear that the paper's argument applies.

 

[ssawka]

Four years ago, SSR was $95. Contracts that are not stripped are passing ROFR at $68, for a decrease of about 25-30%. If you include incentives, SSR might have been as low as $80 net cost four years ago. Still a 15% drop.

Location, Location, Location!

This is just like the market for condominiums in an area experiencing growth. When new condos are being built in desireable locations the resale price of existing condos fall.

 

[tjkraz]

Four years ago, SSR was $95. Contracts that are not stripped are passing ROFR at $68, for a decrease of about 25-30%. If you include incentives, SSR might have been as low as $80 net cost four years ago. Still a 15% drop.

Not exactly apples-to-apples when you are comparing direct purchase pricing to resale. No matter the destination, there has always been a disparity between direct pricing and resale.

 

[Donald is #1]

Hmmm, interesting analysis.

 

[Brian Noble]

Not exactly apples-to-apples when you are comparing direct purchase pricing to resale. No matter the destination, there has always been a disparity between direct pricing and resale.

Four years ago was about when SSR opened---actually it was five. There wasn't much in the way of resale to speak of. You could go by OKW resales then and now, if you like. I'm guessing you'd see a drop similar to that 15%, but I don't have the data readily available.

 

[Brian Noble]

I don't have the data readily available.

...but the DIS does.
Here is the thread for ROFR results from almost exactly a year ago:
http://www.disboards.com/showthread.php?t=720134&page=66

Average of the last 10 OKW successful prices as of that date: $75.90
Average of the most recent 10 OKW successful prices: $70.40

Drop is less than I would have thought: 9.2%.

Mainly, I'm surprised at how low OKW was four years ago. I recall it being higher than that.

 

[CarolA]

...but the DIS does.
Here is the thread for ROFR results from almost exactly a year ago:
http://www.disboards.com/showthread.php?t=720134&page=66

Average of the last 10 OKW successful prices as of that date: $75.90
Average of the most recent 10 OKW successful prices: $70.40

Drop is less than I would have thought: 9.2%.

Mainly, I'm surprised at how low OKW was four years ago. I recall it being higher than that.

And since I bought my OKW several years ago my OKW is worth MORE then I paid for it. (Not something I can say for my home!)

 

[Caskbill]

...but the DIS does.
Here is the thread for ROFR results from almost exactly a year ago:
http://www.disboards.com/showthread.php?t=720134&page=66

Average of the last 10 OKW successful prices as of that date: $75.90
Average of the most recent 10 OKW successful prices: $70.40

Drop is less than I would have thought: 9.2%.

Mainly, I'm surprised at how low OKW was four years ago. I recall it being higher than that.

Unknown of course is how the OKW extensions might affect things for resales.

Contracts that weren't extended now have 4 fewer years left than they did 4 years ago (33 yrs left vs. 37 yrs left in 2005), but those that were extended still have 48 years left as of today. Buying OKW 4 years ago when it only had 37 years remaining (at that time), vs buying an extended contract today that still has 48 years remaining probably affects the current 'average' price.

If those 10 prices included OKW contracts that had been extended, then that most likely props up the average current price a little. To be more accurate one would need to limit the current 10 OKW prices to only those contracts that haven't been extended.

 

[Brian Noble]

None of those 10 were extended contracts. The current ROFR tracker thread separates them. There have not been many reports of extended contracts---only three in all of 2009---but the average of those three is $75. I would not put much faith in that number, as there are so few data points.

http://www.disboards.com/showthread.php?t=1960185&page=58

My overall sense is that the time horizon for original OKW contracts is not yet perceived to be an issue in the resale market, as the last 10 SSR contracts reported to have passed ROFR average to $67.98, lower than un-extended OKW contracts, despite the longer time horizon, lower dues level, and relative ease with which you could use SSR points at OKW for most of the year in most unit sizes.

 

[adminjedi]

I love data, hate doing the math...so thanks!

 

[Mississippian]

Unknown of course is how the OKW extensions might affect things for resales.

Contracts that weren't extended now have 4 fewer years left than they did 4 years ago (33 yrs left vs. 37 yrs left in 2005), but those that were extended still have 48 years left as of today. Buying OKW 4 years ago when it only had 37 years remaining (at that time), vs buying an extended contract today that still has 48 years remaining probably affects the current 'average' price.

If those 10 prices included OKW contracts that had been extended, then that most likely props up the average current price a little. To be more accurate one would need to limit the current 10 OKW prices to only those contracts that haven't been extended.

Caskbill,

You might want to take a look at TTS's resale list. The extended contracts do not seem to be bringing much or any premium in asking price. I have repeatedly said I thought the present value of the extra years was about $3, but I think I may have overstated their value.

 

[Brian Noble]

I happen to like the ROFR data better---as those are actual selling prices, not asking prices. Unfortunately, the ROFR data are also a bit of a lagging indicator.

Either way, it is clear the market seems to be placing a low-to-modest value on longer horizons at this time.

 

[speedyf]

I guess I'm in opposite world over here in Louisiana (which is usually opposite world anyway).

I purchased my Saratoga Springs (150pt) contract last year for $72 per point...so, the value is down on that. I built my home in 2006 and it appraised at $159k (1600 sq ft home). I recently did a refinance (2 years later) and it appraised at $196k...about a $37k jump in 2 years.

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