Future of DVC Resale Prices

[5forDiz]

We'd had such threads both in general and as it pertains to OKW. I think many of us felt like that $15 was too much, $10 per point was likely the ceiling for reasonable participation in an extension and to get a truly good turnout, more in the $5-6 range pp tops. Even with the high pressure tactic, it appears to be less than 50% opted in. The problem is they've set a precedent and their pretty much stuck with it. IMO, they didn't have the legal authority for a special assessment for such an issue. If I had still owned OKW at the time, we'd have found out for sure.

Isn't there a suit pending challenging legality ? seem to recall something like that; if so depending upon that outcome wonder how that will impact possible extension plans for other resorts

 

[Dean]

Isn't there a suit pending challenging legality ? seem to recall something like that; if so depending upon that outcome wonder how that will impact possible extension plans for other resorts

I hope so. I know there was a planned action about the dues issue but am not certain if there's an action about the SA issue which is my contention. Basically that the POS and other legal documents don't give them the right to levy a special assessment for this purpose. I realize it puts them in a catch 22 in that the way I read the documents, if they extend it otherwise, the act of extension itself would extend it for any member unless they opted out and maybe even then. Certainly if legal action on this specific issue would prevail and force DVC to extend for free if they extend, there's a good chance there will be no extension for other resorts but if they did, it'd likely be late in the game. There are benefits to DVC and Disney simply having more people as a member even if they don't get any direct income for the extension so I don't think a successful action total precludes extension.

 

[jar]

Here's how I looked at it when I tried to run the math on buying a few years ago:

Today, the present value of the right to stay at BWV in 2043 and beyond is extremely little. Therefore, there is virtually no "discount" for the fact that it will expire then versus if it lasted beyond.

Over the next several years (figure 10-15 years), the value of the stays in 2043 and beyond will still be very modest in terms of impact on pricing. I would expect it to be more than offset by the higher price of comparable alternate accommodations that I'd be spending if not at DVC (since I've essentially locked in my price of accommodations already, except for maintenance, which is much lower than the cost of a room).

Therefore, putting aside the supply and demand of the resale market and the current economic state, the value to me of a DVC membership will rise in the near future since I'll benefit from a greater savings on the cost of a room relative to what I'm paying in MF as Disney raises its room rates. As we start to move closer to 2042, however, the increasingly fewer # of remaining stays under the membership will start to outweigh the inflationary rate for alternative accommodations and the value will drop until it reaches zero in 2042.

Of course, if you were not buying and holding but were trying to predict resale values, you'd have to factor in a number of factors that are completely unpredictable today, such as how many DVC resorts there will be in 15 years, what the economy will be like, how many resales are on the market, etc. But from a purely mathematical view of intrinsic worth, I believe that the value will increase in the near term, then plateau and gradullay fall until expiration.

 

[nickspace]

But from a purely mathematical view of intrinsic worth, I believe that the value will increase in the near term, then plateau and gradullay fall until expiration.[/QUOTE]

This is not was has happened in the last few years why do you feel this downward trend will not continue in the near future?

 

[jar]

The answer is because of market conditions, most particularly the drastic hit to real estate prices in the economy.

As I said, this is how I see the instrinsic worth rising then ultimately fall, not what market conditions would price a resale at. There are too many macroeconomic factors that influence that, as well as an imperfect market (a lot of forced sellers today, for example, along with hot new DVC properties that are causing people to want to sell their current resort), beyond what the actual worth to an owner would be.

I'm not a financial analyst, but you could certainly build a model that estimated the exact "worth" of a point for each year from today until 2042, or even in the past. You would take (i) the per night price of a comparable room today and adjusted each year until 2042 based upon historical Disney room price inflation, (ii) the projected MF for each year until 2042 based upon historical MF inflation and (iii) the # of points necessary for a test week (it can be any season). Then you would take the net present value of the future value received and MF paid for each remaining year until 2042. Again, that's not what the points would buy or sell for on the resale market, but that would give you the "true" intrinsic value. And I suspect that # is rising today and would continue to rise over the next decade or so before gradually falling to zero in 2042.

 

[Dean]

The answer is because of market conditions, most particularly the drastic hit to real estate prices in the economy.

Actually even before the downturn the few extended contracts that were listed were not at a full $15 difference. For one to come out ahead from a strict $$$ standpoint the spread will not only have to maintain but increase at a rate appropriate for the dollar investment. One can't legitimately argue use and enjoyment on something where there's no actual benefit for over 30 years other than the financial difference. I think it's clear that the market does not value those contracts at even $10 pp above non extended independent of the economic downturn.

 

[jar]

Absolutely -- if you ran 2043 through 2057 (or whatever the extended date would be) through my hypothetical model, I would be very surprised if it were worth $15 in net present value today. I would not have purchaed the extension. But this only serves to reinforce the idea that 2042 expiration date does not have very much influence on value today and won't for some years to come.

 

[Dean]

But this only serves to reinforce the idea that 2042 expiration date does not have very much influence on value today and won't for some years to come.

I don't think one can successfully make that argument. Certainly there are several factors and overall demand of a given resort seems to currently be more important than expiration. However it seems clear that prices had stabilized and started to decline before the economic downturn. Other factors include the resorts DVC is selling retail, expiration, dues and several others. I think it's safe to say it's not a large factor for some situations but it's still an important factor. You've seen several of us that were big "buy where you want to stay" advocates that have changed out basic stance due to the current costs and spread to retail combined with the expiration issues.

 

[DisneyWalker44]

A little bit of math geekery... Let's build a crude model of "fair" DVC price. Actual selling prices will be a bit higher or lower due to a number of "emotional" factors, but this should give us a very crude ballpark answer. Note that new resorts will have lots of emotional wiggle in the prices - but existing resorts sold on the free market should be somewhat close to the model price.

Owning a DVC point is worth about $5/year (points are worth $10 on the free market, less $5 for maintenance). So the fair price for, say, SSR, would be the present value of 5/year for the next 46 years. At 7.5% interest, that gives us $69/point. So the model isn't crazy.

Ignoring inflation of a minute, the fair price for a contract with 15 years left would be about $47.50.

If we assume inflation of 3%, and net investment earnings of 6% (pick different numbers if you like), the $15 purchase price will leave a hole of $122.21 in your investments in 2042. But you will have an OKW contract worth approximately 134.77.

Again, it's a very crude model. It can't tell us if $15 is the perfect price or not. But what it does say is that $15 isn't a *crazy* price - if you assume that DVC is still going to be as popular in 36 years as it is today. If it is, that $15 purchase will probably be looking pretty good.

 

[Dean]

Owning a DVC point is worth about $5/year (points are worth $10 on the free market, less $5 for maintenance). So the fair price for, say, SSR, would be the present value of 5/year for the next 46 years. At 7.5% interest, that gives us $69/point. So the model isn't crazy.

There is a fundamental flaw here. Owning DVC is worth AT MOST $5 a point THIS year using your thinking and this assumes you actually rent out your points. However it's a depreciating asset more than an appreciating one with a kicker, appreciating yearly fees. One cannot successfully, IMO, make the argument that DVC is worth $5 a point above fees every year for the remainder much less $5 a point plus inflation. Plus there are risks to owning and risks to generating that $10 a point figure, that risk has a dollar amount that must be assigned to it and subtracted out. Also, you cannot own AND get an investment return on the same dollars other than if you sell at a profit. The real value currently is likely closer to $3 a point when all is said and done using THIS model. Of course there are other models but they are essentially all user dependent but some are equally if not more applicable. One is the value of what you would have paid using rack rates, a fools comparison IMO. And then there's the model of what you actually would have paid had you not owned DVC, likely the BEST comparison from a dollar standpoint. Then there's the model of what you could have gotten by with paying for off site either cash or timeshares. IF one uses points for DCL, DC, CC and Adventures those points drop down to around $5-7 a point minus fees, with risks that's zero of a negative balance.

if you assume that DVC is still going to be as popular in 36 years as it is today. If it is, that $15 purchase will probably be looking pretty good.

Not only that, which is a large assumption, it assumes that OKW will be as popular as it has been and IMO I think we've already seen it is not as popular now as it was 3 or 4 years ago. That could change with a good hard refurbishment but it'll take more than just replacing tiles, painting and replacing appliances over time for this trend to reverse.

 

[jar]

A little bit of math geekery... Let's build a crude model of "fair" DVC price. Actual selling prices will be a bit higher or lower due to a number of "emotional" factors, but this should give us a very crude ballpark answer. Note that new resorts will have lots of emotional wiggle in the prices - but existing resorts sold on the free market should be somewhat close to the model price.

Owning a DVC point is worth about $5/year (points are worth $10 on the free market, less $5 for maintenance). So the fair price for, say, SSR, would be the present value of 5/year for the next 46 years. At 7.5% interest, that gives us $69/point. So the model isn't crazy.

Ignoring inflation of a minute, the fair price for a contract with 15 years left would be about $47.50.

If we assume inflation of 3%, and net investment earnings of 6% (pick different numbers if you like), the $15 purchase price will leave a hole of $122.21 in your investments in 2042. But you will have an OKW contract worth approximately 134.77.

Again, it's a very crude model. It can't tell us if $15 is the perfect price or not. But what it does say is that $15 isn't a *crazy* price - if you assume that DVC is still going to be as popular in 36 years as it is today. If it is, that $15 purchase will probably be looking pretty good.

This doesn't work at all. DVC is not a financial investment for most people, so you can't value it based upon the point rental value. For nearly everyone, the "value" of a point for a given year is what comparable accommodations would have cost if you weren't staying at DVC. Not rack rates, not off-site, but a comparable Disney resort at the best rates you could have booked, assuming that that is where you would have otherwise stayed. By my judgment, a point may well be worth $20, not $10, because if I weren't staying in the 12 point/night studio at BWV, I would have paid for a $240/night room there (which doesn't even take into account taxes). Subtracting the $5 MF and I'm left with a net value of $15 for my point this year.

I've been trying to chart how much value I get out of my DVC membership each year, and I do it by valuing the accommodations I stayed in (what I would have paid to stay there), subtracting the MF I paid that year and then discounting it back to the year of my original purchase (I paid cash so I use the cost of my home's mortgage as a discount rate figuring that if I didn't buy DVC, I could have used it to pay down the mortgage and thus saved the same % in annual interest as the discount rate I am using). I can then compare when all of my vacations add up to my total purchase price, using the same year's dollars.

 

[DisneyWalker44]

There is a fundamental flaw here.

First of all, it's a model, OK? It's not meant to be perfect. It's just there to give us some no-crazy way of guessing what a DVC contract with 15 years let on it might be worth. It not useful if you want to exactly know the fair price. But if you are just trying to get a vague idea, I think it better than nothing.

Owning DVC is worth AT MOST $5 a point THIS year using your thinking and this assumes you actually rent out your points.

No, it doesn't assume you rent out points. I'm just putting a $ value on what a point is worth to an owner. What people are willing to pay on the rental market is just a proxy - the best one we've got.

However it's a depreciating asset more than an appreciating one with a kicker, appreciating yearly fees.

It's a depreaciating asset because the number of remaining years are running out. I don't see any reason to believe that each year itself will be worth less. I think the value will grow at least as mush as the increase in fees.

And then there's the model of what you actually would have paid had you not owned DVC, likely the BEST comparison from a dollar standpoint

Again, I think the best model of what something is worth is what people are willing to pay for it in a free market. I'll take that over any theoretical model any day of the week.

 

[Dean]

A DVC point does not have an inherent value, only an inherent cost. It only has value in how you use it whether it be to rent it or use it. Even then that value may vary depending on what you compare it to as I was pointing out above. Resale prices only give you a current value and give you essentially no information for the future value. IMO the actual resale prices and rental prices will not keep track with the costs and if you adjust for inflation, WILL get less valuable comparatively every year over the long haul though for a given period you will see ups and downs, YMMV.

 

[WDWFigment]

This doesn't work at all. DVC is not a financial investment for most people, so you can't value it based upon the point rental value. For nearly everyone, the "value" of a point for a given year is what comparable accommodations would have cost if you weren't staying at DVC. Not rack rates, not off-site, but a comparable Disney resort at the best rates you could have booked, assuming that that is where you would have otherwise stayed. By my judgment, a point may well be worth $20, not $10, because if I weren't staying in the 12 point/night studio at BWV, I would have paid for a $240/night room there (which doesn't even take into account taxes). Subtracting the $5 MF and I'm left with a net value of $15 for my point this year.

I've been trying to chart how much value I get out of my DVC membership each year, and I do it by valuing the accommodations I stayed in (what I would have paid to stay there), subtracting the MF I paid that year and then discounting it back to the year of my original purchase (I paid cash so I use the cost of my home's mortgage as a discount rate figuring that if I didn't buy DVC, I could have used it to pay down the mortgage and thus saved the same % in annual interest as the discount rate I am using). I can then compare when all of my vacations add up to my total purchase price, using the same year's dollars.

Your method of calculating doesn't work because it doesn't account for the time value of money. The stated comparison is arguably what lures people to Timeshares in the first place: "Save up to 70% by buying X time share".

Moreover, if you don't treat DVC as a financial investment, what means do we have of determining its FMV? People may not have the numbers in mind when they purchase, or may purchase for rationales more related to "pixie dust" than reason, but it's hard to quantify an intrinsic value in being an "owner".

 

[BWV Dreamin]

Rental prices are determined by comparing CRO...rental prices in no way reflect the value or cost of a property.

 

[Dean]

Rental prices are determined by comparing CRO...rental prices in no way reflect the value or cost of a property.

Actually it is one way of looking at value and for those of us that occasionally rent, it is a very valid way. If you only rented, it'd be the best way.

 

[jar]

Your method of calculating doesn't work because it doesn't account for the time value of money. The stated comparison is arguably what lures people to Timeshares in the first place: "Save up to 70% by buying X time share".

Moreover, if you don't treat DVC as a financial investment, what means do we have of determining its FMV? People may not have the numbers in mind when they purchase, or may purchase for rationales more related to "pixie dust" than reason, but it's hard to quantify an intrinsic value in being an "owner".

Of course it accounts for the time value of money. That is what is meant by saying that you need to discount back to the year of purchase.

A financial investment is one that you look to rent/sell in order to have a return on that investment. That's not what DVC is. The means of determining its FMV to an individual without considering it a financial investment is to look at the alternative cost you would pay if you didn't have DVC and wanted a comparable vacation. That's what my "model" would do.

 

[WDWFigment]

Of course it accounts for the time value of money. That is what is meant by saying that you need to discount back to the year of purchase.

A financial investment is one that you look to rent/sell in order to have a return on that investment. That's not what DVC is. The means of determining its FMV to an individual without considering it a financial investment is to look at the alternative cost you would pay if you didn't have DVC and wanted a comparable vacation. That's what my "model" would do.

Perhaps I need to learn to read a little better. My mistake.

 

[BWV Dreamin]

Actually it is one way of looking at value and for those of us that occasionally rent, it is a very valid way. If you only rented, it'd be the best way.

Well CRO will determine your rental ceiling not how much you can get for your property on the resales market. That's what makes resales a bargain.

 

[Dean]

Well CRO will determine your rental ceiling not how much you can get for your property on the resales market. That's what makes resales a bargain.

My reference was more to the rental prices affecting your value, not CRO price involvement. I'd agree that CRO prices and to a degree, any specials or discounts, will affect the potential rental price at a given time but it is a moving target.