Historical Value Drops - Resale

[Marionnette]

Except we have historical evidence of DVD not ROFRing during the last recession, which led to threads such as this one https://www.disboards.com/threads/6-month-rofr-analysis.3120984/#post-48786564 from the end of that recession. When their direct sales slowed and they had plenty of points accumulating because of all of the foreclosures & deeds in lieu of foreclosure they chose to essentially abandon ROFR for awhile.
IMO real estate, of which DVC is a very small subset, cannot forever go up, particularly if salaries remain essentially stagnant, couple that with historically low interest rates - many folks do finance their DVC purchase, and it wouldn’t surprise me to see resale prices falling again if the whole house of cards tumbled again like we saw back in 2009-2012ish. I can‘t guess or predict whether we’ll see a similar event in the future, I just know it could happen because it did happen not so long ago.

Everything that you stated is true. But that doesn't contradict my belief that DVD is not uninterested in keeping resale prices high. They just made it a lower priority during the recession. High resale prices justify their high direct prices.

In 2008-2009, it was a a surplus of points and a lack of demand that kept prices low. You can't sell what people won't buy. Cash flow in corporations was a huge consideration at the time with very little reinvestment in capital improvements and asset acquisition taking place. It wasn't a lack of interest that kept DVC from ROFRing those cheap contracts. It was where they chose to prioritize their assets. Why buy up contracts when they were foreclosing on more than they could sell?

Now, the real estate bubble could pop relatively soon. The WSJ is predicting that by this fall, the sellers market will have run its course and demand will lessen. If so, there may be be a similar drop in the number of ROFRs and subsequently, resale prices will fall in accordance. But right now...in this very moment...DVD is very much interested in keeping resale prices high.

 

[Dyefrog]

Using the info you provided and DVC Resale Market’s Mar 21 avg resale price, it’s a big jump in 9yrs. Basically doubled the price. If prices barely dropped during a time when parks and resorts were closed, people were unemployed and the uncertainty of the economy, I don’t think there would ever be big drops in resale prices. The driving factor for decreased value really lies with time left on contracts. So I’d say in less than 10yrs, all the 2042 resorts will begin to fall off a cliff.

Mar 2021 avg

• OKW - $110/point
• SSR - $118/point
• VWL - $121/point
• BWV - $133/point
• AKV - $122/point
• BCV - $151/point
• BLT - $160/point

Thanks for doing the comparison. This gives some indication of historical data concerning resales only. While not guaranteed, it's similar to the stock market in that there are peaks and valleys but if you have a 10 year horizon, and some flexibility to ride out any dips, it's not unreasonable to estimate a ~doubling in value over 10 years +_ for non 2042 contracts.
It would be interesting to see if there's anyone with a resale contract they've owned for more than 12 months that is worth less than what they paid. Because the market is hot right now, it have confidence there aren't any. So to make a statement that they will definitely decrease in value over time is false without clarifying the specifics such as years left to expiry.

It's also kind of pointless to state that any contract at expiration will be worthless and I don't know why that even needs to be said. The wild card that makes that seemingly obvious statement potentially wrong is what will Disney throw at those contracts at the 10 years to expiration point. I could just as assuredly claim no contract will eventually be worthless based on the same lack of evidence. Nobody knows.

But based on past performance per the chart above, if a contract is held for 10 years and still has 15 years remaining, the data supports it appreciates. To sugar coat this even more, if you were to take the investment potential off the table and look at the purchase price as it compares to cash holding, the argument could be had that DVC based on the above scenario can allow you to vacation at Disney for free.

This is based on a typical 150 points at a $7.50 MF resort with purchase price of $150pp. In 10 years it's value went from $22,500 to $45,000. MF of $1,125 year one to $2,250 year 10 would be ~$16,875 less the $22,500 profit on the contract = DVC paid you ~$5k for 10 years of vacation.

While there's many negative Nancy's out there that will fall back on the past performance is no guarantee song and dance, use the chart above and MF's from the previous 10 years. Or the 10 years before that.
As mentioned above, this does not apply AT THIS POINT IN TIME to 2042 contracts, but it may.

 

[DVCSunDevil]

Everything that you stated is true. But that doesn't contradict my belief that DVD is not uninterested in keeping resale prices high. They just made it a lower priority during the recession. High resale prices justify their high direct prices.

In 2008-2009, it was a a surplus of points and a lack of demand that kept prices low. You can't sell what people won't buy. Cash flow in corporations was a huge consideration at the time with very little reinvestment in capital improvements and asset acquisition taking place. It wasn't a lack of interest that kept DVC from ROFRing those cheap contracts. It was where they chose to prioritize their assets. Why buy up contracts when they were foreclosing on more than they could sell?

Now, the real estate bubble could pop relatively soon. The WSJ is predicting that by this fall, the sellers market will have run its course and demand will lessen. If so, there may be be a similar drop in the number of ROFRs and subsequently, resale prices will fall in accordance. But right now...in this very moment...DVD is very much interested in keeping resale prices high.

I can see the lens through which you are looking at this. However, I tend to think DVC is taking a different long term strategy. No company wants to see their main competition stay relevant, which is what you are saying if you are of the opinion DVC likes the resale market to stay healthy. The proof is in the Riviera resale restrictions: DVC didn't implement those restrictions to keep the resale market healthy, but rather to hurt the resale market. I think DVC's longer term strategy is to crush the resale market as much as possible. They could easily do that by implementing more severe resale restrictions, to the point that no one wants to buy resale.

I was listening to a podcast that had some people on from one of the resale brokers. They weren't happy with the Riviera resale restrictions, because they know long term that it won't be good for resale prices (which hurts their commissions). They mentioned it's still too early to tell how severely the restrictions will impact resale prices long term, but I think it's a good bet that DVC will implement more punitive restrictions down the road to reduce the demand for resale. Make no mistake, those Riviera resale restrictions are the first of many.

You stated "But right now...in this very moment...DVD is very much interested in keeping resale prices high." I could understand that if it meant buyers were switching to buy direct instead of resale. Yet listings are very slim for resale contracts at the moment...buyers are still looking for those resale contracts. All those resale contracts currently being sold is directly taking away from direct sales for DVC. Even if the resale prices are approaching direct prices, the fact is that they are still less expensive and consumers are going to chose the cheaper price more often than not (I would still buy resale over direct in this current climate). Again, long term I see DVC making resale purchases extremely unattractive via resale restrictions. They want prospective future buyers to look at future resale restrictions and think "yuck, no way I am buying something that limited".

It's an interesting conversation, nonetheless

 

[RoseGold]

I was listening to a podcast that had some people on from one of the resale brokers. They weren't happy with the Riviera resale restrictions, because they know long term that it won't be good for resale prices (which hurts their commissions). They mentioned it's still too early to tell how severely the restrictions will impact resale prices long term, but I think it's a good bet that DVC will implement more punitive restrictions down the road to reduce the demand for resale. Make no mistake, those Riviera resale restrictions are the first of many.

Meh, I'm not crying for the resale brokers. The RIV resale market is still for a Disney hotel, and that still has real value. No matter what happens with DVC pricing, life will continue to happen. People will continue to sell and regret their timeshares.

 

[RanDIZ]

What Disney is doing by creating restrictions is clearly creating resort specific contracts going forward by way of resale market. One of the reasons I became a member was knowing I’d at least have the option to book at 14 resorts, if available. I would say it will hurt direct sales rather than help them. I always hear the number 10 float around regarding years that majority of contracts are held. I’d love to see some real numbers to get a better picture. If that’s the case, going into direct knowing it’s highly likely to be sold in a decade with these restrictions, why would someone want to buy? You’d be buying a contract with only 1 resort and hoping within that resort you’ll be able to book when you want to travel. That’s a stretch and really narrowing the probability of booking down really low.

I got in the DVC game late, resale 2020, and have only seen prices increase. It appears since the start of DVC, it was a win-win for all parties. DVC owners saved money on deluxe stays and Disney made money as always. Now, it doesn’t seem so member friendly anymore, specifically for the resale owners as if our money is any different.

 

[macman123]

Realize that Disney suspended ROFR out of need for a few years around 2009 and again out of fear for several months in 2020. They’ll do it again if they have more contracts coming in via repossession than they can sell, and if that is the case, you can be sure prices are already falling as people try to dump their contracts before they go underwater.

I get the 2020 one, but why was it in 2009?

 

[Marionnette]

I get the 2020 one, but why was it in 2009?

The real estate bubble burst in 2008 due to a lot of factors. Stock market crashed in October 2008 as a result. A lot of people who had money invested in the market for their retirement lost a substantial amount of money. The economy shrunk. And then we went into a recession

 

[sndral]

I get the 2020 one, but why was it in 2009?

Lots of ‘funny money,’ easy financing, no qual mortgages, people using housing equity as an ATM, financial institutions repackaging & reselling mortgages, etc.. In short lots of shaky credit extended, & shady financial products created a bubble, which popped. Because people couldn’t afford to pay their DVC mortgages DVD foreclosed on or executed deeds in lieu of foreclosure so didn’t need to acquire points via ROFR. Plus, since a lot of people were in bad financial shape they couldn’t afford to buy direct either. Here’s a link w/ a summary of the causes of the Great Recession https://www.investopedia.com/terms/g/great-recession.asp

 

[chalee94]

I get the 2020 one, but why was it in 2009?

If you are asking more specifically about the DVC side, the "Great Recession" caused a big drop in buyers Other than a handful of BCV contracts, Disney dropped all ROFR activity for around 18 months or so, IIRC. I think Dean said one OKW contract made it through at around $25 per point.

I agree that Disney was getting more inventory than they needed by foreclosure and that was part of the reason they shut down ROFR. In 2007-2008, we also had a spike in gas prices that was reducing travel somewhat and I think Disney had a bit of a cash crunch as they hit a wall with securitizing their timeshare loans, so they did not have enough cash to let the timeshare side spend that much.

If you are curious, some guesses about the current recession can be found here (although the reason was too unusual to guess):

DVC and The Great Recession of 2007-2014 | The DIS Disney Discussion Forums - DISboards.com

 

[Nabas]

I get the 2020 one, but why was it in 2009?

What some forget is that Disney flooded the market with DVC points around the time of the Great Recession:

• SSR (opened in 2004) - 14 million points
• AKV (2007) - 7.4 million points
• BLT (2009) - 5.7 million points

That's more than 27 million points in 5 years.

In the 10 years before that, Disney had released less than 10 million points.

So you had a financial crash combined with a flood of new DVC inventory.

 

[HHISand]

I agree with CastAStone above that it appears the only time that resale point values have gone down was during the times that Disney suspended exercising its ROFR. I have been fortunate in that I bought my first contract during the first time period mentioned and my third in 2020 when ROFR was suspended. My second was a direct contract at Grand Floridian when they were first offered to current DVC members ($145/point if I remember correctly). However, I would not recommend buying points as an investment -- buy because you want to use them. It is a helpful perk if they keep their value (or go up) if you ever need to sell.

 

[CastAStone]

What some forget is that Disney flooded the market with DVC points around the time of the Great Recession:

• SSR (opened in 2004) - 14 million points
• AKV (2007) - 7.4 million points
• BLT (2009) - 5.7 million points

That's more than 27 million points in 5 years.

In the 10 years before that, Disney had released less than 10 million points.

So you had a financial crash combined with a flood of new DVC inventory.

Aulani the next year too with something like 11 million

 

[Nabas]

Aulani the next year too with something like 11 million

And 10 years later, Disney still is trying to sell Aulani!

 

[mrsclark]

This is not a perfect comparison, but in some ways I was thinking about it like purchasing a car. When you buy new (ie direct from DVC), you have a lot of depreciation as soon as you drive off the lot and if you want a new car with the perks (ie benefits of buying direct) you pay for it. When you buy a used car (ie resale) you most likely won’t take a big depreciation hit upfront. If you drive until the wheels fall off (ie until the expiration of the resort contract) your value at the end of product’s life is $0. However between the time you buy and the end of the contact SOME resale value will be there although that will fluctuate with supply and demand. In the meantime, you have a “use asset” (car/timeshare) for you to enjoy. And like with any other use asset you have to pay for maintenance, fees, etc. I know that this is not perfect comparison since resale values can go up significantly and I don’t think the values of used cars ever see those kinds of spikes but that is kind of how I am analyzing it in my mind.

 

[CarolMN]

I know that this is not perfect comparison since resale values can go up significantly and I don’t think the values of used cars ever see those kinds of spikes but that is kind of how I am analyzing it in my mind.

Covid has upended a lot of things. I was very surprised to see that the value of my soon-to-be 6 year old auto has increased quite a bit from what it was pre-Covid. But, like my DVC membership, I am not ready to give it up, LOL.

 

[RoseGold]

It's also kind of pointless to state that any contract at expiration will be worthless and I don't know why that even needs to be said.

It does need to be said because it is different than every other timeshare system I am familiar with.

 

[ziravan]

I’ve purchased 2 resale contracts:

BCV for $84/pt in 2014

AKV for $100/pt in 2019

both would have to fall pretty far for me to take a loss on selling them. Historically DVC has appreciated in value such that I think it’s fairly safe to say that any future depreciation will likely be more than offset by future gains if you hold it for at least 5 years.

 

[Red Dog Run]

OKW might resale low, but once I break even, it's never a zero to me while I stay there.

 

[RoseGold]

both would have to fall pretty far for me to take a loss on selling them. Historically DVC has appreciated in value such that I think it’s fairly safe to say that any future depreciation will likely be more than offset by future gains if you hold it for at least 5 years.

Yea, last thing I want to do is take a tax hit on the gains (WHAT???), so I might be stuck holding VGF I bought in the 150s for a while.

I think my SSR in the 90s will be right on track to sell at the same price in 7-8 years though.

 

[zeferjen]

Both of my resale SSR contracts broke even a long time ago so I guess my only risk is in the later years if I can't use or rent out the points for more than the dues.