How high can MF go?

[rg35]

If your looking at short time frame (1-3 years) then perhaps not. But if your looking at it over a long time frame (25 -50 years, which is really what we are talking about here), salaries have to keep up with inflation.

Adjusted for inflation, wages in the U.S. have been fairly stagnant since the 1970's.

 

[crvetter]

Adjusted for inflation, wages in the U.S. have been fairly stagnant since the 1970's.

Just want to jump in and add this post from a previous thread covering the same exact topic which has some data on this. I personally don't agree wages have been stagnant since 1970 the data really doesn't suggest as much either. Looking just from 1990 forward, which I had previously, you can see Wage Growth outpacing inflation. Without wage growth outpacing inflation you have a severe economical problem for a particular economy, this isn't really quite were the US economy has been since 1970. Though I agree post-recession wages and inflation have been in lockstep.

Well actually earnings increases pretty much are correlated with inflation, sort of required for a well functioning economy. Inflation is a measure of a basket of common household goods a US citizen would purchase, thus if inflation outpaces wage growth people stop being able to live and quality of life plummets and eventually would disappear. Also inflation here being discussed is US inflation thus should correlate that to US wage growth. Historically since 1951 Wage growth has outpaced inflation

View attachment 407371

Looking at the annual growths you see very few times inflation outpaced wage growth. Any time inflation outpaces wage growth for extended periods of time there will be large macroeconomic issues and if it continues consistently you have situations like Venezuela.

View attachment 407372

Here is looking at a comparison from 2007 (peak market before crash) until 2017. You see them pretty much in lock step. So overall the past 10 years has shown we can expect wage growth (median is used here which is a better measure for middle class) and inflation to be similar.

View attachment 407373

Looking at 1990 forward (last 30 years or so) we see wage growth still outpacing.

View attachment 407375

Median Wage (From Social Security Admin)
https://www.ssa.gov/oact/cola/AWI.html
CPI (Measure of Inflation for US)
https://fred.stlouisfed.org/series/CPIAUCSL

 

[rg35]

Just want to jump in and add this post from a previous thread covering the same exact topic which has some data on this. I personally don't agree wages have been stagnant since 1970 the data really doesn't suggest as much either. Looking just from 1990 forward, which I had previously, you can see Wage Growth outpacing inflation. Without wage growth outpacing inflation you have a severe economical problem for a particular economy, this isn't really quite were the US economy has been since 1970. Though I agree post-recession wages and inflation have been in lockstep.

According to this study by Pew research, today’s real average wage has about the same purchasing power it did 40 years ago.
And what wage gains there have been have mostly flowed to the highest-paid tier of workers. Some of us might be doing pretty well, but a lot of the country is not really seeing gains at all.

https://www.pewresearch.org/fact-ta...rs-real-wages-have-barely-budged-for-decades/

 

[CanadaDisney05]

According to this study by Pew research, today’s real average wage has about the same purchasing power it did 40 years ago.
And what wage gains there have been have mostly flowed to the highest-paid tier of workers. Some of us might be doing pretty well, but a lot of the country is not really seeing gains at all.

https://www.pewresearch.org/fact-ta...rs-real-wages-have-barely-budged-for-decades/

going back to the original point that started this whole inflation/wage discussion, if wage growth = inflation, then you must factor in inflation when talking about maintenance fee increases. Otherwise, you are way overestimating the negative affect of future MF increases. Even if MF outpace inflation, if you ignore inflation completely, because of the compounding effect, the real cost of MF increases is exponentially overstated.

 

[ELMC]

Make sure you are factoring increasing costs to hotel rooms into your equation.... Of course, there is a risk that this doesn't happen, but it is very unlikely that hotel prices don't atleast keep pace with inflation. If the past is 30 to 50 years is indicative, it will likely outpace inflation as well.

If you are going to introduce macroeconomic variables to the equation it might be important to note that in a recession, Disney will likely highly discount its hotel room inventory to spur demand. DVC on the other hand, will still be beholden to the same cost structures and point requirements.

As mentioned above, don't forget inflation. Also keep in mind that these things are not linear functions. There will undoubtedly be several years in a row where MF inflation outpaces its long term average, followed by years where it under paces the average. Don't allow recency bias to affect your decision making.

I don't think that drawing conclusions from data, both longitudinal as well as recent is allowing recency bias to affect my decision making. Brand new DVC resorts are coming to market with maintenance fees higher than existing resorts. That is the opposite of what is logical, as Riviera won't need repairs, refurbishments, or replacements at the same pace as the older resorts.

Not to be argumentative, but I think the data in the chart below contradicts your assertion quoted above. The year over year mf increases have outpaced inflation for almost every year at every resort for the past 20 years.

https://*******.com/dvc-information/financial/dvc-annual-dues/dvc-annual-dues-history/
ETA: Ok so apparently the link got knocked out by the filters, and I am not going to recommend or suggest how to circumvent that. But I will say that a historical accounting of maintenance fee increases for every DVC resort since inception supports my assertion above vis-a-vis inflation.

 

[ELMC]

going back to the original point that started this whole inflation/wage discussion, if wage growth = inflation, then you must factor in inflation when talking about maintenance fee increases. Otherwise, you are way overestimating the negative affect of future MF increases. Even if MF outpace inflation, if you ignore inflation completely, because of the compounding effect, the real cost of MF increases is exponentially overstated.

True. But here's the thing...since inception DVC has positioned itself as a way of essentially prepaying for a lifetime's worth of vacations. The premise was that the bulk of the money was paid upfront and then you were paying a small percentage of maintenance fees each year. So in essence, purchasing DVC was supposed to make the owner immune from these phenomena and it shouldn't even be a discussion. The fact that it is now a discussion, regardless of inflation, purchasing power, or anything else, suggests that we may have broken the model that Disney originally used to sell the concept of DVC.

 

[DougEMG]

True. But here's the thing...since inception DVC has positioned itself as a way of essentially prepaying for a lifetime's worth of vacations. The premise was that the bulk of the money was paid upfront and then you were paying a small percentage of maintenance fees each year. So in essence, purchasing DVC was supposed to make the owner immune from these phenomena and it shouldn't even be a discussion. The fact that it is now a discussion, regardless of inflation, purchasing power, or anything else, suggests that we may have broken the model that Disney originally used to sell the concept of DVC.

The one hope I have around MF is that Disney executives are not so dumb that they destroy their product. With resorts having a 50 year "lease", eventually they will return to Disney to be repackage and resold as new. Once they have around 12-15 on-site resorts they can just keep reselling them over and over, but only if the savings over hotel costs are still there. If MF ever get too out of control, then DVC is dead. So if is in DVC's own best interest to keep MF under control.

 

[ELMC]

The one hope I have around MF is that Disney executives are not so dumb that they destroy their product. With resorts having a 50 year "lease", eventually they will return to Disney to be repackage and resold as new. Once they have around 12-15 on-site resorts they can just keep reselling them over and over, but only if the savings over hotel costs are still there. If MF ever get too out of control, then DVC is dead. So if is in DVC's own best interest to keep MF under control.

I agree with you completely. But in 2042 resorts like BWV will be back on the market. I don't think the studios will be priced anywhere near the 10-16 points a night they are now. And the purchase price will be much higher. And the maintenance fees will be higher as well, most likely outpacing inflation.

But I have to ask you this...if you recall I posted on here several times that BLT at $165 per point blew through the value proposition of DVC and was officially my jumping off point. But now we've shot straight past that; Riviera is $188 per point with maintenance fees of $8.31. Some quick math suggests that all things being equal it will take an owner roughly 27 years to break even vs. renting. Yet people are still buying. So my question is...is it even possible for DVC to not be a thing, or will there always be buyers?

 

[jkevinmcg]

I own 150 points at BWV, I took the average of the 3 highest years since inception (2019 - 9.5%, 2017 - 4.69%, 2006 - 6.35%) and projected that out till expiration.
Using that number, 6.85%, annual dues will have increased to:
$14.86 per point in 2030 - 107% more than today
$28.82 per point in 2040 - 301% more than today
Based on the 6.85% estimate, my total cost of dues from 2019 till expiration will be $56,361.60. This is a mind-numbing number.

From 1996 to today (24 years), dues have increased by 94%. On average that is 2.95% per year. There were two years when dues went down (2000 and 2001).
1996 - $3.70 per point
2019 - $7.17 per point

Total dues cost for 150 points over the period from 1996 to 2018 is $16,995.00

 

[KAT4DISNEY]

Is there a chart anywhere on the internet that shows the appreciation of rack rates over the years?

I believe that either allears.net or mousesavers.com has kept a chart of the rack rate appreciation.

 

[crvetter]

Some quick math suggests that all things being equal it will take an owner roughly 27 years to break even vs. renting.

I agree with that statement; however, for all isn't the best comparison point. For me I found renting to be cumbersome and too restrictive for my tastes. While owning sure I need to make a reservation at 11 months but I can move it around easily based on flights and availability later.

Also I didn't like comparing to renting because I wanted "harder" to get properties which meant that renting was less of a shoe in. Also, basically the argument of not owning because of renting relies on an owner willing to rent (which in a well functioning market won't exist eventually if the value add isn't there on some relative basis, thus as resorts age out renters may disappear if DVC stops selling). Overall DVC still markets against rack rates for it's savings (which is actually a regulated equation, though I concede a super conservative one), and I did my analysis against 15-20% discount (which I find even difficult to find for the resorts and times I want to travel). I also realize most people compare savings against a deluxe room when a lot of times that isn't what the buyer was staying in before purchase (often DVC is a means to upgrade accommodations thus should really compare against that for the true savings, if any, but I found DVC to be almost the same price as moderates).

 

[CanadaDisney05]

I agree with that statement; however, for all isn't the best comparison point. For me I found renting to be cumbersome and too restrictive for my tastes. While owning sure I need to make a reservation at 11 months but I can move it around easily based on flights and availability later.

Also I didn't like comparing to renting because I wanted "harder" to get properties which meant that renting was less of a shoe in. Also, basically the argument of not owning because of renting relies on an owner willing to rent (which in a well functioning market won't exist eventually if the value add isn't there on some relative basis, thus as resorts age out renters may disappear if DVC stops selling). Overall DVC still markets against rack rates for it's savings (which is actually a regulated equation, though I concede a super conservative one), and I did my analysis against 15-20% discount (which I find even difficult to find for the resorts and times I want to travel). I also realize most people compare savings against a deluxe room when a lot of times that isn't what the buyer was staying in before purchase (often DVC is a means to upgrade accommodations thus should really compare against that for the true savings, if any, but I found DVC to be almost the same price as moderates).

Here is my methodology (I'm a bit of a financial nerd so take it with a grain of salt):

1) Setup a Net Present Value chart for discounted cash flows. Basically, I looked at all of the money coming out of my account on a year by year basis such as financing payments (adding DVC to the mortgage, so I'm comparing the monthly payment vs what it would have been without adding it to the mortgage) & maintenance fees. I then net this against the amount I would have paid for a hotel room (this is the variable I played with).

2) I used different inflation rates to account for US inflation, hotel inflation, and maintenance fee inflation.

3) I then discounted each year's cash flows back to present value.

4) I then played around with the hotel price variable until I got to a point where the NPV would be zero (or close to).

Using my numbers (again, these are personal based on my exact situation), I found:

Actual Hotel Cost Per Night in 2019 dollars = $263 per night (approx the cost of a moderate)

However, because in my calculation I assumed that hotel rates would appreciate at a faster rate than US inflation, if I were to stay at a hotel that cost $164 per night today (value) for the next 35 years (years remaining on SSR contract), I would spend the same amount over the lifetime of the contract.

Edit: I thought I should also mention that these numbers were compiled using a direct purchase of SSR @ 160 PP, financing at 2.7%, and travelling almost exclusively in Magic Season.

 

[crvetter]

Here is my methodology (I'm a bit of a financial nerd so take it with a grain of salt):

1) Setup a Net Present Value chart for discounted cash flows. Basically, I looked at all of the money coming out of my account on a year by year basis such as financing payments (adding DVC to the mortgage, so I'm comparing the monthly payment vs what it would have been without adding it to the mortgage) & maintenance fees. I then net this against the amount I would have paid for a hotel room (this is the variable I played with).

2) I used different inflation rates to account for US inflation, hotel inflation, and maintenance fee inflation.

3) I then discounted each year's cash flows back to present value.

4) I then played around with the hotel price variable until I got to a point where the NPV would be zero (or close to).

Using my numbers (again, these are personal based on my exact situation), I found:

Actual Hotel Cost Per Night in 2019 dollars = $263 per night (approx the cost of a moderate)

However, because in my calculation I assumed that hotel rates would appreciate at a faster rate than US inflation, if I were to stay at a hotel that cost $164 per night today (value) for the next 35 years (years remaining on SSR contract), I would spend the same amount over the lifetime of the contract.

Yeah I agree in general with your assessments as they are similar to what I performed in determining my decision of purchasing DVC (and pretty much how I found DVC to be roughly the cost of a moderate over the long term buy and hold of a contract).

 

[ELMC]

I agree with that statement; however, for all isn't the best comparison point. For me I found renting to be cumbersome and too restrictive for my tastes. While owning sure I need to make a reservation at 11 months but I can move it around easily based on flights and availability later.

Also I didn't like comparing to renting because I wanted "harder" to get properties which meant that renting was less of a shoe in. Also, basically the argument of not owning because of renting relies on an owner willing to rent (which in a well functioning market won't exist eventually if the value add isn't there on some relative basis, thus as resorts age out renters may disappear if DVC stops selling). Overall DVC still markets against rack rates for it's savings (which is actually a regulated equation, though I concede a super conservative one), and I did my analysis against 15-20% discount (which I find even difficult to find for the resorts and times I want to travel). I also realize most people compare savings against a deluxe room when a lot of times that isn't what the buyer was staying in before purchase (often DVC is a means to upgrade accommodations thus should really compare against that for the true savings, if any, but I found DVC to be almost the same price as moderates).

All good points. I suppose the true comparison would be having a small ownership interest and getting point transfers, as that would allow you almost the same flexibility (except no online booking). But I will concede that of all things DVC, point transfers is what freaks me out the most.

The fact of the matter is that DVC salespeople can make all the points you made above and not have to counter the points I made, which rarely come up, and that makes DVC a pretty easy sale, even at today's prices.

 

[crvetter]

All good points. I suppose the true comparison would be having a small ownership interest and getting point transfers, as that would allow you almost the same flexibility (except no online booking). But I will concede that of all things DVC, point transfers is what freaks me out the most.

The fact of the matter is that DVC salespeople can make all the points you made above and not have to counter the points I made, which rarely come up, and that makes DVC a pretty easy sale, even at today's prices.

Which posts (like yours) are good tools on the DIS to educate buyers.

 

[mustinjourney]

If your looking at short time frame (1-3 years) then perhaps not. But if your looking at it over a long time frame (25 -50 years, which is really what we are talking about here), salaries have to keep up with inflation. If salaries don't keep pace, then people can afford less and less, and if people can't afford as much, prices go down, which brings us back to a point where salaries have kept pace.

Also keep in mind, that people who are buying DVC most likely skew to higher wage professions. I'm sure these jobs have well outpaced inflation.

I'm in a higher wage profession (in-house attorney) at a chemical company -- my average increase over last 7 years has been 2.3%. Fairly pathetic given how much the economy has been humming along. Just one data point I know -- but it is fairly reflective for workers that don't bounce around from company to company. On the other hand, my wife (engineer) was getting very good raises (usually over 5%) -- but she worked at a large oil company and they paid very well.

 

[CanadaDisney05]

I'm in a higher wage profession (in-house attorney) at a chemical company -- my average increase over last 7 years has been 2.3%.

A quick google search suggests that even 2.3% has been above inflation over the same time frame. But ya, as you said, everyone will be different, and you will not be able to predict the future with exact accuracy, but the best we can do is make reasonable assumptions to get us close.