How has the resale market changed?

[DopeysGal82]

I've been reading a lot of articles (some linked from here) and many are afew years old and reference that "with incentives, resale and direct cost the same" as well as "I can sell my interest for more than I paid for it"

Obviously that is not the case now. When/how did this change? Is there any expectation that the resale market will go back up?

 

[drusba]

When the economy of the US crashed in 2008-09, the resale market crashed with it. It has even gotten a little worse since then. Right now you can ask the same question about virtually anything good economically: Will it return or get better?

What we have also had in the last couple of years is the gap between resale prices and Disney prices becoming huge partly because Disney, apparently unphased by a bad economy, has been increasing prices faster and higher than it ever did before, e.g., two years ago BLT was $112 a point before incentives and is now $150. I don't remember inflation gallopping along at the same 16% increase per year.

As a result, even if the resale market improves, it is highly unlikely you can ever get back to the days when buying from Disney with discounts was actually not much above purchasing resale for some resorts. Moreover, the resale market for resorts with January 2041 end dates has now reached the stage where that is becoming a price-lowering or price-suppressing factor because it is only 29 years away

 

[disneynutz]

The prices will never go back up as long as more people are selling than buying. If all sellers would get together and set their prices $10 less than Disney's prices, then everyone would be in better shape. Same for owners who rent their extra points. For some reason they all tend to use a $10 per point price even though their dues keep going up.

Bill

 

[chalee94]

"I can sell my interest for more than I paid for it"

disney originally sold OKW for $48 per pt and BWV for $62 per pt...but at $150 per pt direct, it would take many years of inflation to get "ahead."

DVC has also become more aggressive in competing with owners who sell by differentiating between direct and resale (even if taking away trades for cruises and wdw hotels is a pretty small thing at this point.)

the biggest issue, though, is that too many people are unemployed and concerned about the economy to have the disposable cash to buy a timeshare. if the economy improves a ton in the next few years and there are a lot more buyers in the market, the prices would go up...but i'm not that optimistic in the near future.

 

[Brian Noble]

When the economy of the US crashed in 2008-09, the resale market crashed with it.

Actually, if you look at the old ROFR threads carefully, I think you will see erosion of resale prices began happening in a serious way even before the late '08 stock market crash. They accelerated during that time, but it started before.

What's more, even though the economy has been in recovery for much of the last year---and the luxury market has improved faster than the general economy---resale prices have done nothing but continue to fall.

If you look at other timeshare systems, there is a pretty good explanation for this. I've posted about it elsewhere. Here is the main summary:

Point prices are dropping due to an inevitable process that is built in to the fundamental economics of timeshares. Essentially, timeshares have little or no organic demand. Very few people wake up and think, "Today, I'm going to obligate myself to pay for the operation and maintenance of a portion of a luxury vacation condo for decades to come." Instead, it is all manufactured by sales tours that promise to bottle the "magic at today's prices". And, those tours are very effective; sales remain fairly brisk even in the face of a relatively poor overall economy.

But, as the system grows, the number of people looking to sell for whatever reason also grows---they get tired of DVC, the kids they bought it for have outgrown Disney, their financial circumstances change, who knows. Unless the set of people interested in buying resale *also* grows just as fast, prices must drop. Inevitably, the secondary market fades, and eventually collapses. It has happened to every other timeshare developer, it is happening to Disney as well. The DVC secondary market has ridden the wave longer than most, because they have a unique product and a strong brand name. But, eventually, the pool of ready and willing resale buyers runs dry.

The broader conversation his here:
http://www.disboards.com/showthread.php?t=2837453

 

[Brian Noble]

too many people are unemployed and concerned about the economy to have the disposable cash to buy a timeshare.

I think this is an over-simplification, and a dangerous one. Another thing I wrote in the above-referenced thread:

It's been three years since the economy tanked, and we've been digging out slowly but surely ever since. Luxury goods have made a comeback. Disney's own RevPAR (a measure of hotel booking strength) has climbed substantially, and total profits from the Resorts side of the business have improved. There's a limit to how much you can blame "the economy" for the deeds on the resale market.

 

[BWV Dreamin]

I have rented for over 3 years now. There have been some notable changes IMO.
There are more people shopping...its who has the lowest price per point, regardless of service or reputation.

The number of distressed points for rent by owners, who either don't understand how DVC works and now find themselves with a lot of points ready to expire, or forgot their banking deadline, or for whatever reason, is really hurting. They are trying to get rid of these points for $6,$7,$8/pt. The renter doesn't understand why "your asking a lot more".


It is now harder to rent/transfer smaller amount of points, less than 24, because now Disney can rent these for $15/pt.

More people are renting. With so much competition, its taking a whole lot more time to find a renter.

I have been very lucky so far with great people I've rented to and hopefully they've been very happy with my service. I'm just glad I'm not in this for a business.

 

[mopee3]

The prices will never go back up as long as more people are selling than buying.

I don't see these markets ever coming together. Resale only gets DVC resorts, which is enough for me, while buying through Disney gets the ability to go where Disney promised us. Granted anything beyond DVC resorts were just perks but sales people painted a wonderful picture, traveling all over the world on points.

So the difference now is like buying a "stripped" resale contract vs resale with banked points. Why buy stripped and not be able to use the points for a year or 2 when you can get banked and maybe paid dues, etc?

Disney has now created the 2 tier system whether they wanted to or not.

As for ROFR, unless Disney has call for points from "sold out" resorts why would they be in the market.

Don't get me wrong, I love DVC and will be in the market for more resale points, because before I joined I setted the question of where I would use my points and it will/was DVC resorts.


Moe

 

[Lynne M]

Another way to look at it....DVC is an asset that inherently decreases in value. It's a contract with a fixed end point. Let's say, you buy a contract that has 30 years of use left on it. Fifteen years down the road, it will have 15 years of use left on it. It only makes sense that a timeshare contract with 15 years of use left will sell for less than one with 30 years on it.

I would never buy a timeshare with the expectation that it will have ANY resale value in the years ahead. There's a reason that people say "the value of a timeshare is in its use". Look at other timeshare resales. You can pick up Marriott, Hilton, Wyndham timeshares for a few dollars. That's not because they're bad timeshares; they're good, well regarded systems that I wouldn't hesitate to buy into, if one was right for my vacation needs.

If you're looking for an investment property that you can sell some years down the road with at least some expectation of recouping your money, you want to look at vacation homes, not timeshares.

 

[DopeysGal82]

I would honestly think they would exercise ROFR more. It would force the resale market up, taking away the most convincing argument to buy resale vs. direct. They'd also have more inventory to sell themselves at full price, and thus a profit.

 

[Brian Noble]

From the same thread:

This is one of the great myths of ROFR. Prices are only set by willing buyers and sellers---those prices are not entirely influenced by ROFR because (a) Disney has never been consistent about what they did and didn't exercise even when they used it, so things always snuck through, and (b) not everyone carefully follows what the exercise prices are, and set prices without knowing the market. Unless Disney is willing to exercise everything below $X, their impact on the market is small---and even Mickey Mouse has a limit to how much cheese he can devote to reacquisitions.

Disney *could* ROFR everything, but then they have to sell it, along with all their shiny new resorts. And, it's easier to sell a shiny new resort than an old one. What's more, the rule of thumb in the timeshare industry is that sales costs are anywhere from 1/3 to 1/2 total development costs---and those sales costs would be higher for "older" resorts that are harder to sell. So, the "profit" is not what you'd think it would be to resell them unless the resale market is significantly lower than it is now.

 

[mousefan1972]

I would honestly think they would exercise ROFR more.

When DVC exercises their ROFR, they are buying those points back. Remember, they have to have available $ to purchase the points and pay the MFs on them until they resell the contract. They are also re-acquiring many, many points through foreclosure and "walk aways", i.e. those owners who can no longer afford their payments so they just give the points back to DVC. DVC does not want thousands of points sitting in their inventory unsold. Thus, unless there is a demand for points at a specific resort, you won't see too much ROFR action from DVC.

 

[JimMIA]

Resale only gets DVC resorts, which is enough for me, while buying through Disney gets the ability to go where Disney promised us. Granted anything beyond DVC resorts were just perks but sales people painted a wonderful picture, traveling all over the world on points.

This is incorrect.

Resale owners still have the ability to use their points via RCI -- which is the option DVC timeshare salesmen are talking about when they paint that picture.

The only things that have been taken away are the Disney Collection, DCL, ABD, etc. And those were some of the least cost-effective points uses available. As a matter of fact, some knowledgeable timeshare folks think the loss of those options is a big plus, because it forces the prospective buyer to focus on the REAL value of DVC rather than hype.

It's also very important to understand what DVC REALLY "promises" buyers:

1. The ability to use your points at your home resort, subject to availability
2. As long as DVC permits the use of points at non-home resorts, home resort owners will have at least a one-month booking advantage

ANYTHING else can be eliminated -- for resale owners or for direct owners. Nothing else is guaranteed.

 

[JimMIA]

Is there any expectation that the resale market will go back up?

No.

I think the questions now are "How low can you go?" and "How fast?"

 

[a742246]

The prices will never go back up as long as more people are selling than buying. If all sellers would get together and set their prices $10 less than Disney's prices, then everyone would be in better shape. Same for owners who rent their extra points. For some reason they all tend to use a $10 per point price even though their dues keep going up.

Bill

If the MF starts to match the rental price per point we will have a severe problem. Either the (resales and direct) markets will collapse or Disney will prohibit all forms of renting,trading, or transferring. My bet would be the latter.

 

[luckyman_apd]

If the MF starts to match the rental price per point we will have a severe problem. Either the (resales and direct) markets will collapse or Disney will prohibit all forms of renting,trading, or transferring. My bet would be the latter.

The only way rental prices will go up, is if the direct booking prices also go up. People rent because they know it is better than booking direct. I had never even heard of renting until my brother did it and told me about it. At the time we rented at $10 per point, we were being offered a 2 bedroom at SSR for slightly less with my father in laws military discount. We ended up renting the 2 br at BLT because we wanted the monorail.

Now without that discount, SSR would have been more, but not off the charts more. So if the rental price was more, I might have passed. It's always about the dollar. If someone can get something cheaper, they will. So if booking direct starts to increase is price, renting will continue to be popular and renters can even start to charge more, but many people are disillusioned with the price by "free dining". I know it's not really free, but some people don't do the math. They hear free and take it. I had to sit down and explain this to a coworker who seemed to think DVC was the worst if she could always get free dining instead of pay for it. Until people see the actual difference, they always believe the hype.

If Disney does implement restrictions, it will only hurt their direct sales. The price of booking will HAVE to go up, unless the # of guests really declines. Disney will not be able to sell direct if it doesn't even have the promise of being beneficial to prospective buyers. I predict the price of renting will go up, but it may take another year or two. The real problem is people HAVING to get rid of unused points. If I had 50 points unused and I was going to lose them, and value, even $6 is worth more to me than losing them. As long as these cheap last minute points are available, I see it hurting the rental price as well. As long as their is a room to book, last minute points are attractive to those who don't care about where they stay.

 

[disneynutz]

Another way to look at it....DVC is an asset that inherently decreases in value. It's a contract with a fixed end point. Let's say, you buy a contract that has 30 years of use left on it. Fifteen years down the road, it will have 15 years of use left on it. It only makes sense that a timeshare contract with 15 years of use left will sell for less than one with 30 years on it.

My accountant considers DVC a liability, not a asset.

Bill

 

[JimMIA]

Just FYI, this thread is about resale purchase prices -- not rental point prices.

*****
And the answer to OP's question is still "No, they won't go up." Period -- no big explanation or qualification or hedging needed. The answer is no.

If a prospective buyer is hoping to justify a direct purchase with an assumption that resale prices will rebound -- that's a real sucker bet.

Take a look at the sales prices on the ROR thread (not listing prices), subtract 10% commission, and that's the MOST your contract is worth the day you close. And that's today -- it will go DOWN from there.

 

[DopeysGal82]

Thanks for the insights. I was reading online and was really curious how things had changed.

I think based on the rack rates of the Villas, people really COULD charge more for rentals and the rentee would still get a significant discount, but it would have to be everyone

 

[shalom]

I think based on the rack rates of the Villas, people really COULD charge more for rentals and the rentee would still get a significant discount, but it would have to be everyone

Maybe, maybe not. Renting is higher risk for the renter; what you consider a significant discount might not be anywhere near low enough for many people wanting to rent someone else's points to do it. The price has to be low enough to make the risk worth taking. So even if all DVC owners agreed to charge a higher price, you'd end up with fewer people willing to pay it, and thus fewer owners getting rentals.