Maintenance fee predictions

[Madame]

Well actually earnings increases pretty much are correlated with inflation. Also inflation here being discussed is US inflation thus should correlate that to US wage growth. Historically since 1951 Wage growth has outpaced inflation

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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.

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Since you suggested the last 10 years 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.

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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

Interesting. I know the majority here in Canada have not experienced wage growth which keeps pace with inflation in the sense that inflation excludes the most volatile goods (eg fresh foods, gas, etc). Housing, for example, which should not be increasing faster than inflation has sky rocketed here. I can’t speak to the situation in the US.
ETA. You also can’t expect wage growth to continue in perpetuity in the same manner as it has through the expansionary phase of the cycle. That’s recency bias.

 

[crvetter]

Interesting. I know the majority here in Canada have not experienced wage growth which keeps pace with inflation in the sense that inflation excludes the most volatile goods (eg fresh foods, gas, etc). Housing, for example, which should not be increasing faster than inflation has sky rocketed here. I can’t speak to the situation in the US.

The CPI here in the US that Fed policy is based on includes food, gas, energy, housing, and many other items. It's basically supposed to represent the cost of living for a citizen (urban/suburban). I'm actually surprised that Canada (nor any country) doesn't set policy on a similar measure of inflation (including all representative living costs). There are sub-category inflation measures published by Labor and Stats here in the US that does exclude some of the volatile components (which are occasionally used to set policy if one component is viewed as being artificially depressed).

Unfortunately non-US citizens who own DVC are at a disadvantage because their can be a lack of decorrelation between US inflation (which dictates a base minimum that dues will increase) and your home country wage growth. But I would suspect most major Western Economies are all very correlated (over the longterm) with the US.

 

[Madame]

The CPI here in the US that Fed policy is based on includes food, gas, energy, housing, and many other items. It's basically supposed to represent the cost of living for a citizen (urban/suburban). I'm actually surprised that Canada (nor any country) doesn't set policy on a similar measure of inflation (including all representative living costs). There are sub-category inflation measures published by Labor and Stats here in the US that does exclude some of the volatile components (which are occasionally used to set policy if one component is viewed as being artificially depressed).

Unfortunately non-US citizens who own DVC are at a disadvantage because their can be a lack of decorrelation between US inflation (which dictates a base minimum that dues will increase) and your home country wage growth. But I would suspect most major Western Economies are all very correlated (over the longterm) with the US.

Yes I am not well-versed in US economic policy, but greater wage stagnation is somewhat mitigated by universal health & education programs here. And yet still COL inflation (if I can use that term) has rapidly outpaced wage growth.

 

[KAT4DISNEY]

CPI though is still not indicative of Disney inflation. And I'd have believed that MF's have outpaced CPI.

 

[Bing Showei]

You can't think of it in nominal dollars like that. There will be inflation in the world around DVC as well. Everything will have gone up by 2 to 3% annually as well. That includes your earning.

In 1991, OKW was $2.51/pt for ADs. Adjusted for inflation, that would be $4.52/pt in 2017 dollars. In 2017, OKW dues were actually $6.72/pt.

Looking at wage increases, AWI in 1991 $39,255 in 2017 dollars. In 2017, AWI was $50,322.

Wages increased by 28%. In that same period, ADs increased by 49%.

ADs have outpaced both inflation and the AWI over the 26 year period since Disney started into the timeshare business.

 

[crvetter]

CPI though is still not indicative of Disney inflation. And I'd have believed that MF's have outpaced CPI.

Correct that wasn't ever presented I think but is a clear distinction to be made. Personally I was showing for the US inflation has not outpaced wage growth. Also CPI is indicative of a floor on average to Disney inflation; it should be safe to assume MF will on average increase at least by CPI because Disney experiences those inflation costs just like us as consumers, which was the other point I was making.

I agree with what @CanadaDisney05 was attempting to say while MF on average across all resorts is about a 4% increase since inception of the resort is only a realized 2% growth, over other costs, if you assume an average inflation of 2%. This basically was the point being made. The other interesting thing to note is wage growth on average had been higher than inflation growth, so things have gotten more expensive (inflation) but purchasing power of the consumer increased (wage growth) at a greater than or equal to rate. I have attached to this thread the MF increase average since 2017 and since inception for each resort.

In 1991, OKW was $2.51/pt for ADs. Adjusted for inflation, that would be $4.52/pt in 2017 dollars. In 2017, OKW dues were actually $6.72/pt.

Looking at wage increases, AWI in 1991 $39,255 in 2017 dollars. In 2017, AWI was $50,322.

Wages increased by 28%. In that same period, ADs increased by 49%.

ADs have outpaced both inflation and the AWI over that same 26 year period.

This is exactly what @CanadaDisney05 was trying to explain or at least I took it that way. The post being responded to was ignoring inflation and wage growth aspects. The post said in 50 years Riviera would be 100 but that needs to be discounted back to today's dollar or should be realized it was stated in future dollar not present dollar.

Also the average wage index published by SSA says in 1991 it was 21,811.60 and in 2017 was 50,321.89 thus an annual increase of 3.267%. OKW MF increased by about 3.86% which is moderately above the AWI. CPI went from 134.70 to 243.78 from 1991 to 2017 which is about a 2.37%

 

[Bing Showei]

Also the average wage index published by SSA says in 1991 it was 21,811.60 and in 2017 was 50,321.89 thus an annual increase of 3.267%. OKW MF increased by about 3.86% which is moderately above the AWI. CPI went from 134.70 to 243.78 from 1991 to 2017 which is about a 2.37%

Right, but that's in 1991 dollars. Corrected for inflation, that amount is $39,255. It makes the wage increase much smaller when you remove inflation.

My bigger point is that the increase in ADs outpaces both inflation and wages.

ETA: I've heard it said before that you can dismiss how much dues will cost in the future (when projected for increases) as it reflects inflation, increasing wages, etc.The thing is, it doesn't. Dues have gone up more over 28 years than both inflation and the AWI.

 

[crvetter]

Right, but that's in 1991 dollars. Corrected for inflation, that amount is $39,255. It makes the wage increase much smaller when you remove inflation.

My bigger point is that the increase in ADs outpaces both inflation and wages.

ETA: I've heard it said before that you can dismiss how much dues will cost in the future (when projected for increases) as it reflects inflation, increasing wages, etc.The thing is, it doesn't. Dues have gone up more over 28 years than both inflation and the AWI.

We both said the same thing, I think. I didn't put two and two together that you adjusted both the dues by inflation and the AWI so those wash out the impact. So effectively you have shown the cumulative growth of wages and dues in excess of inflation. That is right and sorry about my misunderstanding.

But you are right MF does outpace inflation and wage increase. I was only showing that wages in the US outgrow inflation but didn't go so far to show that wage increases were less than DVC due increases.

And absolutely you need to consider the 4-5% historical average dues inflation and the the CPI of 2-3% to get the true value of what future year dues are really worth in todays dollars. Effectively year X's dues are equal to MF*1.04^X/1.02^X in today's dollars. This was the point I was responding to and I think what @CanadaDisney05 was saying in response to dues being 100 in 50 years because that 100 was based on future dollar which without context means little so discounting back at 2-3% provides context.

 

[CanadaDisney05]

Interesting. I know the majority here in Canada have not experienced wage growth which keeps pace with inflation in the sense that inflation excludes the most volatile goods (eg fresh foods, gas, etc). Housing, for example, which should not be increasing faster than inflation has sky rocketed here. I can’t speak to the situation in the US.

I'm going to take a wild guess and say your from the GTA or Vancouver. Keep in mind that the rest of the country hasn't seen the same skyrocketing housing prices in the past few years.

But housing is just one component of the CPI. You can't expect to see 100% correlation between wages and housing, anymore than you can't expect 100% correlation between wages and DVC maintenance fees. But in general, wages have increased with the collection of items you purchase.

One thing as a Canadian to always keep in mind that exchange rates don't correlate with inflation. So there is an added risk that the exchange rate gets worst

 

[Bing Showei]

That isn't appropriate to do here. What you are really calculating then is the increase in the AWI in excess of the inflation increase. So my statement on the 3.267% wage increase is appropriate and your increase of a cumulative increase of 28% is in excess of inflation so if you think of it that way it's right. But either way MF have increased very closely with the AWI.

I don't think you should ignore inflation and stated the exact opposite always on the board, also @CanadaDisney05 has been pretty vocal about a 4-5% increase in MF and a 2-3% inflation rate should be considered in any financial analysis of DVC. But I have always said that when considering the MF increases you need to consider inflation also so you can discount the expected values of dues back to today's dollars to have an understanding of what those numbers truly mean.

Maybe I'm misunderstanding what CanadaDisney05 is suggesting, but my reading was that they were saying what people pay in dues today should be about what people pay for dues in 50 years from now and that the number only looks big because BillPA did not account for inflation.

Looking at the change in wages over time vs. the increase in dues over time (as corrected for inflation), historically, this hasn't been the case. Examining the numbers this way should give you a better sense for the growing divergence, which I can only imagine continuing.

 

[CanadaDisney05]

I think were all saying the same things. Maintenace fees have historically outoaced inflation, but not by 4 to 5%. The real increase over and above inflation is about 1 to 2%

 

[CanadaDisney05]

Maybe I'm misunderstanding what CanadaDisney05 is suggesting, but my reading was that they were saying what people pay in dues today should be about what people pay for dues in 50 years from now and that the number only looks big because BillPA did not account for inflation.

Yes your misunderstanding what I am saying. MF has outpaced inflation. Avergage MF increases have been about 4%. But when looking at the nominal increases, you still have to discount for inflation or else the increases are going to look extreme.

 

[Bing Showei]

Yes your misunderstanding what I am saying. MF has outpaced inflation. Avergage MF increases have been about 4%. But when looking at the nominal increases, you still have to discount for inflation or else the increases are going to look extreme.

Copy that. I think the part where you said "Everything will have gone up by 2 to 3% annually as well. That includes your earning" threw me off as I read that to mean that you were drawing an equivalence and dismissing the increasing ADs over time as inconsequential.

 

[Madame]

I'm going to take a wild guess and say your from the GTA or Vancouver. Keep in mind that the rest of the country hasn't seen the same skyrocketing housing prices in the past few years.

But housing is just one component of the CPI. You can't expect to see 100% correlation between wages and housing, anymore than you can't expect 100% correlation between wages and DVC maintenance fees. But in general, wages have increased with the collection of items you purchase.

One thing as a Canadian to always keep in mind that exchange rates don't correlate with inflation. So there is an added risk that the exchange rate gets worst

No. The cheapest spot to live in Ontario - near Windsor. Our pricing has soared since 5 years ago. Insanity. There is correlation between exchange & inflation.

 

[DougEMG]

I'm assuming that MF will increase by 2-4 percentage points above inflation each year.

From all the data that I have seen (Maudlin's newsletter), once inflation is removed, wage growth for the last 30 years in the US has been 0.

As for the government's inflation numbers, they aren't overly reliable as they are allowed to do substation, meaning if steak gets to pricey then eat hamburger.

The only real hope I have is that Disney won't be able to sell DVC if MF become so high that there is no savings over staying in a hotel room on cash.

 

[crvetter]

From all the data that I have seen (Maudlin's newsletter), once inflation is removed, wage growth for the last 30 years in the US has been 0.

This isn’t exactly what they are showing or saying; they said the growth remained flat which is a nuanced difference. Here is a Forbes article written by their senior editor. You can’t simply take the arithmetic average of the average wage growth - the CPI they present; you actually need to use the geometric average because of compounding. So my guess is looking at the last 30 years (1990 forward) there is a small, not not negligible, positive growth, which is what I’ve shown in my quick analysis above. I can’t find the index they use from FRED to show what that average growth above (or possibly below) inflation really was over the last 30 years.

Though you are right sometimes inflation outpaced wage growth which are typical during recession periods. But long term systematic inflation outpacing wage growth would be indicative of large macroeconomic issues.

https://www.forbes.com/sites/patrickwwatson/2018/09/25/real-wage-growth-is-actually-falling/amp/

The only real hope I have is that Disney won't be able to sell DVC if MF become so high that there is no savings over staying in a hotel room on cash.

Over the long term MF increases should always be on average less than or equal to the increases on the discounted rack rates times occupancy rate (since they don’t run at 100% like DVC). Since most of the MF (less management fee) are at cost the hotel (cash) side should experience the same increase. So if the discounted rack rate times occupancy rate increases fall below the MF increases consistently then Disney is eating into their profit margin (possibly then selling rooms at a loss) something that would be very problematic for the company at large and signals very bad signs.

Thus so if the scenario you described happens, the prices of DVC would drop because it signifies the company (in particular the theme park unit) is falling hard because less people want to go meaning less competition to buy DVC. But overall there is still likely resale price that will offer some level of savings over rack rates for a potential buyer so it should retain appeal (as seen in 2008-2011 DVC fell but not pennies).

 

[Wakey]

Bing is correct in that piut simply, MFs have increased quite a bit above inflation and wage growth. The difference seems to have increased over the past few years. If we don’t get some very low increases over the next few years, the near 10% last year and possibly similar this year will have a big effect. Essentially maintenance fees will eventually become unaffordable because it is very unlikely wages and thus hotel cash rates will keep pace- especially in an economic downturn. Disney in the strong economy have not yet hit the ceiling on hotel room prices, question will be when will they? I can’t see it continuing like this for the next 5 years personally. When they stop or go into reverse, that’s when our DVC will appear to look poor value. So whilst the economy is strong, hotel rates go up and almost justify increasing MFs because the ‘saving’ is still there. When that saving starts to become eroded, that’s when people will start shouting.

 

[Bing Showei]

So whilst the economy is strong, hotel rates go up and almost justify increasing MFs because the ‘saving’ is still there. When that saving starts to become eroded, that’s when people will start shouting.

I wish I believed this, but I’m starting to realize that it will take a lot more than the slow erosion of POS terms, the slow increase in ADs, the slow reduction of ownership buying power (by way of the reallocation) to make us owners, as a whole, react in a meaningful way.

How many of us already expect the point charts to gradually go back to the 2020 retracted charts? Now of those who do, how many of us have active plans to walk away?

We are a unique subset of Disney fans who have committed at least the next quarter-century to paying to keep a Disney timeshare property running regardless of what is happening with our jobs, IRAs, marriages, etc. With every change that negatively impacts the product we bought, we continue to hold onto our points, maybe even buy more points; justifying the less and less subtle changes each time.

I would hope ADs never exceed hotel room equivalents, as they should, and are audited to, reflect costs that, in part, parallels the costs to maintain the Disney hotels.

 

[crvetter]

I would hope ADs never exceed hotel room equivalents, as they should, and are audited to, reflect costs that, in part, parallels the costs to maintain the Disney hotels.

Yeah If this happens it would surely have to mean Disney is selling the rooms on cash at a steep loss, DVC has failed at making them money, and the theme parks are performing so badly no one wants to go.

 

[Littlelulu01]

When I purchased a few years ago I’m pretty sure dvc advertising was up to 75% over cash non discounted rates over the life of the contract and the savings assuming cash purchase and mf increases of 3%? In about 5 years time since I purchased dvc now advertising up to 50% over non discount cash rates over the life of contract and mf increases of 4-6% average. My initial (realistic assumption at the time) was for akv dues to increase at around 3-4%/year. The realistic assumption today is more likely at 6-10%. It’s difficult to imagine mf at $150 pp when contract expires but pretty easy for me to assume mf of $14+ in the next 10 years.

My aulani subsided dues will potentially fare better but I’ve been trying to book 7 months at vgc and I’ve been totally shut out. I’ve been setting my alarm for 4:30am pst and the rooms are gone- I swear folks must be walking waitlists. When it’s this hard to get a 7 month reservation, the system seems definitely set on a path of just booking 11 months home resort.

Dvc’s advertising add ons for up to 50% savings off non discount cash rates doesn’t seem all that appealing considering my dvc ap gets me 40% off cash rates pretty regularly. Throw in a couple more high mf years and I see dvc boasting claim of 25% savings over non discount cash rates in the next couple years. Not sure how that will work out for dvc but it’s Disney so they will likely be a great seller somehow.