Net Present Value and DVC

[iluvthsgam]

That'll probably stay pretty constant, as it's a pretty safe assumption (IMO) that MF and rental rates will rise in concert. Not an amazing deal, but some of the others are pretty good. Saratoga looks more like 6.5%, which is a pretty good rate in today's environment.

If history is any indication, rental rates will not rise in concert with MF's. MF's have consistently risen about 3.5% per year on average across all resorts.

See here: http://www.disboards.com/showthread.php?t=1222819

Back in 2000 rental rates were $10 pp. The above thread was from 2006 complaining that rental rates were still $10 pp. And still today in 2013 you have owners willing to rent for $10 pp.

Now, at some point down the line when MF's creep towards $10, the hope would be that rental rates will get a bump. But they certainly have not kept up with rising MF's.

 

[hapablap21]

Right now, rentals are a pretty inefficient market, in that people don't know about them. On a disney nerd scale from 1-10, my wife and I are in the 6.5-7 range, and I only learned about point rentals a couple of months ago. The current $14/pt charged by some of the middle-men out there basically makes a DVC studio the same cost as a moderate studio. Seems to me that either nonDVC resorts have to get cheaper or rental prices have to go up.

Even at the prices you quoted, a 40% rise over 13 years is 2.6% compounded. MFs definitely tend to rise at or above that, depending on the resort, but I just can't see rental prices lagging cash rack rate increases in the long term.

 

[iluvthsgam]

MFs definitely tend to rise at or above that, depending on the resort, but I just can't see rental prices lagging cash rack rate increases in the long term.

No dispute about the market inefficiencies, but this is just not true. Rental prices were $10 in 2000 and 13 years later they are still $10. You saying that cash rack rates have not gone up in 13 years since 2000?

I would say 13 years is pretty long term seeing that DVC has only been around for 22 years.

Note: I am not saying that rental rates won't go up in the future (just like David's Rentals went from $13 to $14). I am saying that historically they have not gone up at the same rate of MF's increases and cash rack rate increases. And that is a fact.

 

[Orsino]

I've been tracking the value of my DVC purchase since I bought it a few years ago, but I've taken a different tactic. I'm mainly concerned with when I hit the break even point on my purchase.

I track all money going to DVC by dollar amount and date (100 SSR points in May 2010). I convert all monies to today's dollars based on the date (I use 3%, but that can be changed easily enough). I also track the value I receive from DVC based on the rack rate for the rooms I get minus 40 percent. I know that 40 percent is on the high side for a discount, but I wanted to be conservative. I also use the date to convert to today's dollars.
(I also have the same spreadsheet where I use point rental costs.)

Each time I pay dues, I count that too along with the date.

I'm pretty close to breaking even, especially if I include the money saved on our cruise last summer (we were already going on the cruise and actually received a refund from Disney! Better room, less money, what's not to love?). We break even on our next DVC trip in January. (For counting by point rental we would still be 2000 dollars short).

Considering we only bought in 2010, I think that is pretty remarkable. I was shocked. I didn't expect to break even until 2018 at the earliest (The Cruise discount really helped).


Another thing I like to track is the VPP (Value per point) for each of my trips. Again, I use a 40% discounted rack rate (plus tax) to calculate the value. Then I divide that by the number of points for the stay.

My best is 21 dollars per point. My worst is 11.50 - especially since I am using rented points (12$) for that reservation. But again, my VPP is conservatively low since I'm assuming a 40% discount, which is high and likely not obtainable.

One of these days I want to make a chart of all the rooms in DVC and show the value per point versus rack room rates. I think that would make me smile. Heck, Disney should do that with full Rack Rates to show off the value of DVC.

 

[dmunsil]

No dispute about the market inefficiencies, but this is just not true. Rental prices were $10 in 2000 and 13 years later they are still $10.

Well... 13 years ago they were mostly $10, with occasional rentals for 8 or 9. Now 10 is the floor, and it doesn't happen very often. The common rate is about 11-13. The average rate has pretty clearly gone up.

Note: I am not saying that rental rates won't go up in the future (just like David's Rentals went from $13 to $14). I am saying that historically they have not gone up at the same rate of MF's increases and cash rack rate increases. And that is a fact.

As someone famous said, "If something cannot continue forever, it must eventually stop." Obviously rental prices need to be related to both dues and cash rates. I would expect them to be somewhere between those two numbers, which is where they are now.

I do think they'll be sticky, like a lot of things denominated in small dollar amounts. But if the average price now is, say, $12, we won't see people asking $12.09 next year, then $12.16 the year after. Instead, you'll see a larger and larger number of people asking $13 or $12.50 and getting it, while other people hold the line at $12 and rent faster, but over time the average price creeps up.

 

[Mickey'sApprentice]

I originally was a math major, but I got bored and switched to theatre. Now I'm a software engineer. No finance background, but plenty of math and an interest in fiddling with numbers.

Interesting. Thanks.

I sometimes ask myself...why did I major in Finance? Theater sounds so much more like fun!

 

[dmunsil]

I did want to make one point about an intangible but real difference between cash, renting, and DVC ownership, which is convenience and flexibility.

Cash bookings of rooms (not vacation packages) are supremely flexible at WDW. You can cancel up to 5 days in advance and get your complete deposit back. And you only need to put down 1 day worth of cash as a deposit.

DVC bookings are pretty darn flexible, but there is a downside to canceling at 30 days or below that can make your points hard to use and hard to rent, ultimately meaning their value goes down. You have no deposit (unless you count the cost of your DVC membership )

And rentals are not very flexible at all. Actual terms vary, but it seems like most people want half the cash up front and half before the 30-day mark, and won't refund all or part of that if the renter cancels too late. David's wants all the money up front and doesn't allow cancellations.

So one principle of economics is that convenience and flexibility are worth money. Yes, the room you finally stay in is exactly the same no matter which of the three methods you use, but the ability to cancel if your plans change or you have a difficulty is worth real money. The trouble is I don't know how much that is. But it does explain, perhaps, why renting can be so much cheaper than cash booking. Combine that with the lack of knowledge of renting and the illiquid, thinly traded market, and it does suggest that renting is always going to be cheaper than cash booking direct.

It might be that the rental price will tend to settle at one common price for a while until people start to notice that it's not really giving them enough money over their dues payments to be worthwhile, and then it'll go up quickly to another stable value and stay there. Time will tell.

 

[ELMC]

No dispute about the market inefficiencies, but this is just not true. Rental prices were $10 in 2000 and 13 years later they are still $10. You saying that cash rack rates have not gone up in 13 years since 2000?

I would say 13 years is pretty long term seeing that DVC has only been around for 22 years.

Note: I am not saying that rental rates won't go up in the future (just like David's Rentals went from $13 to $14). I am saying that historically they have not gone up at the same rate of MF's increases and cash rack rate increases. And that is a fact.

I'm sorry, but this is an inaccurate assessment of the current rental market. Yes there are some owners willing to rent for $10 per point, but those are mostly distressed points. The rate at two point brokers is $14. 11 month bookings at desirable resorts frequently rent for $13. The typical number for non distressed points on the rent/trade boards is $12. Point brokers are paying owners $11-$11.25 depending on the broker. So, with all due respect, your statement about the point rental market being stuck at $10 is incorrect as are the assumptions you made based on that statement.

 

[iluvthsgam]

I'm sorry, but this is an inaccurate assessment of the current rental market. Yes there are some owners willing to rent for $10 per point, but those are mostly distressed points. The rate at two point brokers is $14. 11 month bookings at desirable resorts frequently rent for $13. The typical number for non distressed points on the rent/trade boards is $12. Point brokers are paying owners $11-$11.25 depending on the broker. So, with all due respect, your statement about the point rental market being stuck at $10 is incorrect as are the assumptions you made based on that statement.

If I came across as the point rental market is stuck at $10, I am sorry that is not what I was trying to say.

TL;DR - My point is that I think we can all agree that rental prices have not kept up with the rate of inflation of MF's. Fact.

Back in 2000 (and earlier, I just didn't look further back) the rental rate was $10pp. I agree that of course the rental rate has increased, but it is still possible today to get points at $10. Now, online brokers have bumped up to $14pp. But we can't use that number, because we have to use what the DVC OWNER is getting because this discussion was about the NPV for the DVC OWNER.

I certainly acknowledge that some owners get $13 for certain locations in the 11-month window and also that the typical number is $11-$12pp. I just quickly looked at the Rent/Trade board and found that most are $11-$12 with a few $13 and some distressed at $10 and lower.

If anyone had data prior to 2000 on what the typical rate was that would be helpful, but lets just say the rate was bumped to $10 in 2000 and was adjusted upwards at the same rate as the MF's over the same time period until now, we would expect the rental rate to be above $15.50 by now. Which it is not.

 

[dmunsil]

TL;DR - My point is that I think we can all agree that rental prices have not kept up with the rate of inflation of MF's. Fact.

My take on it is that at $10 back then, they were a tad overpriced. But it was very difficult to get a cash reservation and DVC felt like a new and unique thing that people wanted to try for themselves. So renting was the only way to try it out.

Now it's pretty easy to get cash reservations most of the year if you're willing to lay out the bucks, and if there are good sales cash can actually be cheaper than renting. So the rental fees now may be a little underpriced, but not by a huge amount. I think most renters probably want studios, and those are the highest cash to point ratio at WDW.

If you rent points to get a Kidani studio, you're making out like a bandit compared with cash rates, but if you rent points to get a BLT one-bedroom, you're losing money for a good chunk of the year.

Anyway, I think going forward point rental is going to roughly (very roughly) track the inflation rate of dues and cash prices. I know I said predictions are difficult, especially about the future, but this one seems solid.

 

[bighoo93]

If I came across as the point rental market is stuck at $10, I am sorry that is not what I was trying to say.

TL;DR - My point is that I think we can all agree that rental prices have not kept up with the rate of inflation of MF's. Fact.

Back in 2000 (and earlier, I just didn't look further back) the rental rate was $10pp. I agree that of course the rental rate has increased, but it is still possible today to get points at $10. Now, online brokers have bumped up to $14pp. But we can't use that number, because we have to use what the DVC OWNER is getting because this discussion was about the NPV for the DVC OWNER.

I certainly acknowledge that some owners get $13 for certain locations in the 11-month window and also that the typical number is $11-$12pp. I just quickly looked at the Rent/Trade board and found that most are $11-$12 with a few $13 and some distressed at $10 and lower.

If anyone had data prior to 2000 on what the typical rate was that would be helpful, but lets just say the rate was bumped to $10 in 2000 and was adjusted upwards at the same rate as the MF's over the same time period until now, we would expect the rental rate to be above $15.50 by now. Which it is not.

Good discussion, all. A few observations/points to add.

First, while we can draw a line between two points, that isn't a good idea for performing analysis. For example, last year I rented my points out (through a broker) for $10. This year, the same broker is paying $11. So I could connect the two points and say that the price rises 10% annually. Which is true between those points, but not true over the long run. This is an issue for any two points. There are market fluctuations, you can pick a high or low point in one year and connect it to the opposite in another year, and get a different trend.

Personally, I think using the broker market rates is what makes sense for this kind of discussion. Individuals can do all sorts of things to rent their points, but at least the brokers aggregate a lot of those individuals together into a market, and the prices are documented. That data may not be available very far back, but I think that just means the analysis is going to be difficult.

Finally, it is worth thinking about what is going to cause the MFs and the rental rates to change. Over the long run, I suspect that they will both rise at relatively similar rates. MFs will go up mostly due to inflation, and primarily wage inflation. Year to year operations are pretty much at a steady state, with minor fluctuations. And most costs (I think) are wages. They aren't going to bring in more highly skilled people every year, so wages (and therefore MFs) are pretty much going to go up due to inflation.

Over the long run, this is probably going to be the main factor for rental rates, IMO. There are all kinds of factors that can make a difference at any point--terrorist attack, housing market bubble, stock market crash, devastating hurricane, etc. But over time those things will correct and smooth out. There is one factor that is different though: supply and demand.* If Disney were to become a less attractive place to visit, prices would not rise as fast or perhaps level off. Or if it were to become more popular, prices could outpace inflation. The fact that the rental market is not known to everyone is a good point, and yet awareness is almost certainly always rising. All that means is that the number of people learning about it outpaces the number of people who knew and either forget or die. A safe bet, I think.

And demand has been increasing over time. But Disney hasn't sat still. Instead, they've increased the supply of DVC rooms by building out. So while maintenance fees increase annually due to inflation, increased demand can be met by increased supply, keeping rental prices from rising faster. And we know this is going to continue at least in the near term, as the Grand Floridian and eventually Polynesian resorts open DVC rooms. How much will it continue beyond that? I don't know. At some point, DVC will run out of room. But I'm not sure that point is near. As long as demand continues to rise, DVC will probably keep building, and that will provide a headwind against rising rental rates. If DVC were to stop building, I'm pretty confident that you would see rental rates at least keep up with, and probably outpace MF increases. But there is really little reason to think that will happen.

So my guess is that rental rates and MFs will track a fairly similar path over the long run, but it makes sense that MF increases could outpace rental rate escalation.

*Yes, technically supply/demand is also a factor for the workforce, but it is slightly different and this is accounted for in the inflation discussion.

 

[dmunsil]

Now, online brokers have bumped up to $14pp. But we can't use that number, because we have to use what the DVC OWNER is getting because this discussion was about the NPV for the DVC OWNER.

Just one other point: you'd use the $11 number if you were trying to evaluate buying DVC and mostly or always renting out your points through David's. If you plan to compare the value of buying DVC to always renting from David's, then you'd use the $14 number. And if you're comparing to renting from private parties or you're wondering what the NPV is for you if you rent your points out all the time with no broker, then you'd use something in the middle, like $12.50.

The NPV also varies in that case based on which home resort you buy into because of the length of the contract and the dues. So here's the NPV per point assuming 3% dues and rental inflation and 4.5% interest for three rental rates and three resorts:

     NPV/pt for three rental rates
     and three resorts:
     
     $11.00      $12.50      $14.00 
------------------------------------
BWV  $123.12     $158.91     $194.69 
AKV  $174.77     $223.96     $273.14 
BLT  $223.31     $274.85     $326.38

Hmmm... makes me wonder whether I did the right thing buying BWV!

 

[iluvthsgam]

Anyway, I think going forward point rental is going to roughly (very roughly) track the inflation rate of dues and cash prices. I know I said predictions are difficult, especially about the future, but this one seems solid.

As an owner, I would love to see this happen.

First, while we can draw a line between two points, that isn't a good idea for performing analysis. For example, last year I rented my points out (through a broker) for $10. This year, the same broker is paying $11. So I could connect the two points and say that the price rises 10% annually. Which is true between those points, but not true over the long run. This is an issue for any two points. There are market fluctuations, you can pick a high or low point in one year and connect it to the opposite in another year, and get a different trend.

I did not pick two arbitrary points, I picked two points far away in time from each other where I had data. 13 years when the program has only been in existence for 22 years and 18 years or less for most properties should be a good enough historical record. You are right that your picking of two numbers would not be accurate because you cannot expect a 10% raise each year.

Personally, I think using the broker market rates is what makes sense for this kind of discussion. Individuals can do all sorts of things to rent their points, but at least the brokers aggregate a lot of those individuals together into a market, and the prices are documented. That data may not be available very far back, but I think that just means the analysis is going to be difficult.

Okay, if you just want to use the brokers market rates we can. This proves my point even more. Using what the brokers pay to the owners is what you need to do, not what a customer pays to the broker. We are talking about how much the owner can get for renting his points. How long was David's at $10 per point paying to owners before going to $11? I went to his website on archive.org and I found the following:

April 2006: $11 per point (to renters)
June 2006: $12 per point (to renters)
Oct 2006: $17 per point! (to renters)
Nov 2006: $14 per point (to renters)
Oct 2007: $14 per point (to renters)
Dec 2007: $13 per point (to renters)
Mar 2008: $13 per point (to renters)
Sept 2008: $13 per point (to renters)
Dec 2008: $13 per point (to renters)
April 2009: $13 per point (to renters)
Feb 2010: $13 per point (to renters)
Oct 2010: $13 per point (to renters)
Oct 2011: $13 per point (to renters)
Jan 2012: $13 per point (to renters)
Aug 2012: $13 per point (to renters)
Jan 2013: $13 per point (to renters)
Mar 2013: $13 per point (to renters)
April 2013: $14 per point (to renters)

Do you see the trend??

Now, he didn't specifically say on his public facing website captured by the wayback machine what his cut was over the years. Since I've known about using him he takes $3 per point. But i'll give you the benefit of $2 per point in the early years. But still, from 2007 until today there was no increase in the rental rate! So for owners going through him they were at $10 per point the whole time.

Over that same time the MF's increased by:

OKW: 17.11% (or 3.28% per year)
VB(s): 22.93% (or 4.72% per year)
VB: 22.52% (or 4.66% per year)
HH: 16.67% (or 3.21% per year)
BWV:15.87% (or 3.14% per year)
VWL: 18.89% (or 3.43% per year)
BCV: 17.50% (or 3.34% per year)
SSR: 14.25% (or 2.61% per year)
AKV: 20.38% (or 3.47% per year)

How can you possibly look at that and think all of a sudden rental rates are going to increase along with the rate of MF's when the data for the last 7-8 years show that the rental rates with David did not increase at all! What are you looking at to make that assumption? What changes in the next 10 years do you see?

Again, as an owner I would love to see the rental rates go up, but the numbers don't lie. If you want to use the past as an estimator of the future growth, the numbers are what they are. If you think some other factors will change history going forward, I would love to hear what those are!

 

[dmunsil]

April 2006: $11 per point (to renters)
June 2006: $12 per point (to renters)
Oct 2006: $17 per point! (to renters)
Nov 2006: $14 per point (to renters)
Oct 2007: $14 per point (to renters)
Dec 2007: $13 per point (to renters)
Mar 2008: $13 per point (to renters)
Sept 2008: $13 per point (to renters)
Dec 2008: $13 per point (to renters)
April 2009: $13 per point (to renters)
Feb 2010: $13 per point (to renters)
Oct 2010: $13 per point (to renters)
Oct 2011: $13 per point (to renters)
Jan 2012: $13 per point (to renters)
Aug 2012: $13 per point (to renters)
Jan 2013: $13 per point (to renters)
Mar 2013: $13 per point (to renters)
April 2013: $14 per point (to renters)

Do you see the trend??

In 2006 he charged renters $11. In 2013 he's charging $14. That's a trend of 3.5% per year (11*(1.035^7) = 14). He did settle in at $13 for 5 years and a couple months, but I think that's more of a factor of the ease of dealing with whole numbers. And there was a spot of bother in the economy somewhere in there that probably depressed the business somewhat.

I think you've shown that rental prices are sticky, especially at whole dollar increments. Probably in the first year he switched to $13 business was a little slow but profit per booking was great, and in the last year he was renting for $13 business was booming so much he was having trouble sourcing points (in fact, I know that was true because he started heavily promoting renting on the DIS, and eventually offered a higher rate to owners), but the profits per booking were lower. Ultimately he decided he had to bite the bullet and go up to 14. And he'll stay at 14 until he has to move to 15, which might be 4 or 5 years. That doesn't mean the average price won't go up during that time.

Looking at one business does not give you a smooth pricing graph. A single retailer has a lot of pressure to keep prices constant, especially one that prominently advertises a nice round, small, whole-dollar price.

I return to my assertion that rental prices must track cash and dues prices. Dues are the cost to the owner, and renting cannot go lower. Cash prices are the full boat retail, and renting cannot regularly go above it. So no matter what, rental prices have to be in the middle somewhere. There's room for them to float in that space, but they have to be in there.

 

[CarolMN]

Is the next step "Monte Carlo" analysis? Which one of you is going to volunteer to compute the standard deviation?

Dare I admit that I am actually reading this thread - and am enjoying it just a teensy bit?

 

[bighoo93]

I did not pick two arbitrary points, I picked two points far away in time from each other where I had data. 13 years when the program has only been in existence for 22 years and 18 years or less for most properties should be a good enough historical record.

First, thanks for providing the excellent historical data. I didn't mean to imply your points were arbitrary, only that connecting two points isn't sufficient. But the larger data set is definitely more compelling.

How can you possibly look at that and think all of a sudden rental rates are going to increase along with the rate of MF's when the data for the last 7-8 years show that the rental rates with David did not increase at all! What are you looking at to make that assumption? What changes in the next 10 years do you see?

Well, I don't want to repeat my earlier post, but my reasoning is in there. Perhaps the key part is over the long run. The time period over the last decade or so was a bubble and bust period. It is not unreasonable to consider that prices for luxury items like DVC rentals were inflated during the bubble and popped during the bust. So while underlying fundamentals might have tracked more closely with MFs, this trend was overwhelmed by the near term economic environment. And as I said, there will always be those things that cause fluctuations, but over the long run, the trend should still be independent of near term volatility in either direction.

Again, as an owner I would love to see the rental rates go up, but the numbers don't lie. If you want to use the past as an estimator of the future growth, the numbers are what they are. If you think some other factors will change history going forward, I would love to hear what those are!

No, numbers don't lie, but they can deceive. Past performance, especially over a short time span, is not necessarily a good predictor of future returns. The factors are the ones that I mentioned in the post you responded to. Inflation will impact MFs and rental rates similarly, but other factors of supply and demand will also impact rental rates, and probably negatively until and unless there is no room left for development. That's my reasoning, anyway, I don't have a crystal ball unfortunately...

 

[bighoo93]

Looking at one business does not give you a smooth pricing graph. A single retailer has a lot of pressure to keep prices constant, especially one that prominently advertises a nice round, small, whole-dollar price.

Fair point, but I think he is the dominant broker. And while that carries implications of its own, I think it is not a bad approximation to say he is representative of the market.

I return to my assertion that rental prices must track cash and dues prices. Dues are the cost to the owner, and renting cannot go lower. Cash prices are the full boat retail, and renting cannot regularly go above it. So no matter what, rental prices have to be in the middle somewhere. There's room for them to float in that space, but they have to be in there.

I agree that rental prices can't go above cash rates, UNLESS demand outstrips supply (e.g., all cash rooms are sold out and there is still excess demand). It is not true that renting cannot go lower than costs to the owner, though. This is only true a) in the long run and b) for those operating as a business. I believe most people who are renting out points are doing so for years that they can't use them themselves. In this case, any income they make from renting is better than just letting the points expire. If the market won't support prices above the MFs (which I doubt will happen, but in theory), an owner would still rent the points to recoup some of the annual cost rather than eat the whole thing. A business could do this for the short run, but would eventually get out of the business if it lasted over the long run. Remember everything about point rentals is a sunk and fixed cost. The only marginal cost is the broker fee, so as long as your rental rate is greater than that (which obviously it will always be) it makes sense to rent if you can't use the points.

 

[iluvthsgam]

I think a lot of good points are made and I respect your positions.

The thing about the points rental market is that there are a lot of different owners who rent points for different reasons. It is not a single market of owners solely looking to make money. Some people rent only when they have left over points they cannot use. Some people rent to make a profit each year on their points. Some people rent in emergencies when plans change and they have points going to expire.

I think the market would be more stable and more closely follow the rate of inflation on MF's if everyone was renting for profit. But like was mentioned above, sometimes people will rent in a pinch for $9 just so they can recoup their MF's. this dynamic will always be there.

The market has been stuck at $13 at David's for so long. MF's are rising across the board at about 3.5% per year. David just switched to $14. At 3.5% per year it would only take 2 years to get to $15, another 2 years to $16, another 2 years to $17, another 2 years to $18, and then 1 year to $19. If your theory is correct that rental rates will track inflation this is what we will see. As an owner I hope so but I doubt it.

 

[iluvthsgam]

Also note for example The Timeshare Store is renting points still at $12 per point. I don't know what they pay owners though.

 

[dmunsil]

I think it is not a bad approximation to say he is representative of the market.

I think he has an outsized influence, because people always like to have a "neutral" price guide. But I do think the market slowly went up during the time that David's was continuously charging $13. The rent/trade board goes back to 2002, so I went back and scanned the prices people were asking for at different times. Back in 2002, $10 was pretty much the high end. There were plenty of people asking $8 or $9. In 2005, the range seemed to have moved up a bit, with more $10 and $11, with some $9's. By 2008, there were almost no $8 except for distressed points, and you saw more $12 asking prices. You get the picture.

Keep in mind this is entirely unscientific; I just skimmed some random pages for each year and clicked on some of the posts to see the price they were asking if it wasn't in the title. I want to believe that the prices were going up relatively continuously, so it's not unlikely that I saw what I wanted. I suppose I should try to do some actual sampling, say, of the first 10-15 prices on the same day of the year for a bunch of years. But I can't quite muster the enthusiasm. Anyone else want to do some investigating and make a graph?

I agree that rental prices can't go above cash rates, UNLESS demand outstrips supply (e.g., all cash rooms are sold out and there is still excess demand). It is not true that renting cannot go lower than costs to the owner, though. This is only true a) in the long run and b) for those operating as a business. I believe most people who are renting out points are doing so for years that they can't use them themselves.

Yes, you're right. I still think both of those scenarios are unlikely. Possible, but unlikely.

It's hard to imagine a situation that would make rooms at WDW really popular in a way that wouldn't also make DVC members want to go and use their points. Also, if rooms get scarce, Disney has a bunch of levers they can adjust to raise the effective price. So I'm having a hard time imagining a scenario where the demand for DVC rooms is so high that it would drive the rental prices higher than the price for cash rooms. I think in that case Disney would raise the cash prices to compensate.

And while it is true that conceivably the rental price could drop below the dues rates and people would still rent, I think demand would quickly move the price up, because it implies that the rental prices had gotten much lower than cash. I think it's pretty essential (to Disney) for DVC dues and cash prices to stay far enough apart for DVC to seem like a good deal. If dues start to be a significant fraction of the cash prices, people are going to dump DVC like a hot potato and it will start to get a bad reputation. Disney can't allow that to happen. Moreover, there's no real economic reason for it to happen. Costs at deluxe resorts are always going to be similar to costs at DVC resorts.

Ultimately I'm just saying that I think it's almost inconceivable that the order of prices per point does not remain Dues < Rental < Cash. (And now I hear Inigo Montoya in my head saying, "You keep using that word. I do not think it means what you think it means." )

I think there are real economic forces that keep rental prices from getting too far down toward dues prices, and cash prices far apart from dues prices, and rental prices below cash prices. That's not to say they are guaranteed to move in lock-step. In the long run, though, they have to keep the same basic ordered relationship.

At 3.5% per year it would only take 2 years to get to $15, another 2 years to $16, another 2 years to $17, another 2 years to $18, and then 1 year to $19. If your theory is correct that rental rates will track inflation this is what we will see.

If we're starting a pool for when he goes to $15, I'm going to pick 3.5 years. I think David has a strong incentive to keep his point costs as low as he can while still making a profit. So he'll squeeze his profits quite a bit before moving up. Maybe. I also don't think the trend for rentals is really 3.5%, so I essentially agree with you that rental prices haven't tracked dues and cash growth up to now. I just don't really think they've been as static as you seem to think they've been.

There's also the fact that studios are really expensive in dollars and cheap in points, which gives David and other renters a lot of leeway. There are many, many times of year when renting points to get a one-bedroom is either a net loss or barely cheaper, but most of the year a studio is way cheaper via point rentals. Why this is so is unclear to me, but it does give way more range between the dues and the cash value of a DVC point if you're pricing based on the cash value of a studio.