Projecting future resale values

[havoc315]

There is always much discussion about resale expectations.... Will restrictions hurt the resale of Riviera, when will 2042 resorts really start to see their resale values decline..

And I'd point out, that resale values have mostly been flat in the last year, which is a real dollar decline. (If you bought a house in 1975 for $30,000 (which would be a really nice house in 1975), and it was only worth $50,000 in 2022, then the real dollar value has declined... since the increase didn't keep up with inflation).

Anyway, I believe we are entering a negative period for resale values, not just at restricted resorts or 2042 resorts. Resale pricing is mostly set by free market supply and demand. The caveat being ROFR. Disney isn't actually setting a "floor" with ROFR, they are simply buying the cheapest contracts set by the free market -- that doesn't exactly create a floor, but it does boost demand and provide a boost to prices because of the increased demand.

Back to supply and demand: Disney has tight control over the supply of direct points. They decide when to build and sell a new resort. They can add more direct points to the market using ROFR, foreclosures, etc. They can reduce the number of direct points on the market by using DVC properties for cash bookings.

On the other hand -- The supply of resale is always going up. Each time they build a new resort, it increases the supply of resale. The older DVC owners get, the more likely they are to re-sell their points.
So there may be some month to month fluctuation, but in the long term, the number of resale contracts on the market is always increasing.

If demand isn't increasing in line with the increase in supply, prices will drop. Disney artificially reduces the demand for these resale contracts with various restrictions: the resale restrictions on Riviera, the inability of legacy resale to use Riviera and future resorts, blue card perks, etc. But even without these drawbacks, eventually the demand for DVC can't keep up with the ever increasing supply. We hit a saturation point.

Are we at the saturation point now? If not, we will be within the next 2 years;
Right now, there are still 3 resorts with incentivized direct points: Riviera, Aulani and VGF. VGF will take at least another 1-2 years before it sells out. Aulani will never sell out. Riveria has at least another 4-5 years.
Next year, VDH joins the fray. Likely, that's 4 resorts selling incentivized points at the same, time, and Disney not using ROFR at those resorts.
In 2024, Poly tower joints -- VGF may or may not be sold out by then. So between 4 and 5 resorts for sale at direct, at once.

What's the impact of having all those resorts at direct sale at the same time?
1 -- Disney wont' be using ROFR at those 4-5 resorts. So there will be less demand-support for re-sale coming from Disney itself. You won't have that ROFR "floor"
2 -- Those points will be incentivized, giving a direct purchase ceiling...

In other words, VGF re-sale was in the 190's before it reopened for sales. In 2024, why pay $195 resale for ANY resort, when you can get direct points at 4-5 resorts for a similar price?
Meanwhile, take a look at what happened to VGF re-sale prices when direct sales re-opened... VGF re-sale dropped by 10-20% practically overnight. Well.... That will likely happen at Poly in 2024-- Current pricing of $166 at Poly, which is about the same at BLT and Copper Creek. But if Poly re-opens for direct sales... and re-sale prices drop at Poly to $145... that will also impact resale prices at BLT and CCV.

So far -- The big issues driving down likely resale prices -- DVC expansion and market saturation.

The next big issue is indeed the 2042 expiration: I believe next year, we enter a big psychological milestone for buyers: The resale contracts will clearly have under 20 years remaining. (technically, they are already under 20 years but with a 2042 expiration is psychologically still sounds like 20 years). I'm NOT saying 2042 contract prices will plummet next year. But the financial value of those contracts gets tighter and tighter by significant margins with each passing year. By the time we hit 2027-2032, most buyers likely will really scrutinize the math on a per year basis.
Of course, as demand for the 2042 contracts lessen, some of those prospective buyers will look more at 206x+ contracts. If and when VGF and Riviera sell out, their resale prices may get a little bit of a boost.

But for the reasons stated, n terms of real dollars, I expect resale prices to drop at most, if not all, resorts over the next 2 years. (Riviera and VGF *might* get a little boost when they sell out, and as 2042 contracts get closer to 2042). The raw dollar prices may increase somewhat, but not on the pace of inflation.

So let this simply be buyer beware -- I don't expect re-sale value to disintegrate into nothing. But don't go in with an expectation of significant resale. I'd go in with the expectations of a re-sale loss.

 

[wilkydelts]

Around and Around We Go, Where It Stops, Nobody Knows!

 

[pianomanzano]

 

[RoseGold]

Are we at the saturation point now? If not, we will be within the next 2 years;

There is no "saturation point," because the comparison is always hotel rooms. If DVC gets too cheap, commercial actors will just take the best reservations and rent out the points. This even works with resale restrictions.

Renting isn't being done on a huge scale right now because DVC is relatively expensive, which is why there are always more renters than points on the market. Scrolling through Facebook shows you that. I'd argue renting is a bad idea mathematically for most right now, and I'd say the market agrees. If we reach a time when there are more points than renters, we are in real trouble. And Disney cares at that point, because again the comparison is hotel rooms.

Resale, at least if you didn't buy Aulani or RIV, is a function of the hotel rooms, and I'm not worried about those. For resale in the short run, I'd feel quite confident buying Poly1/VGF/BLT right now. My hesitation is about Disney in general and how timeshare-y DVD is acting. I do believe they have the ability to destroy DVC as a brand over time and turn it into another timeshare.

 

[havoc315]

There is no "saturation point," because the comparison is always hotel rooms. If DVC gets too cheap, commercial actors will just take the best reservations and rent out the points. This even works with resale restrictions.

Disney controls the supply of hotel rooms. The number of hotel rooms isn't massively increasing at the pace of DVC supply.
In fact, Disney has routinely DECREASED the supply of hotel rooms, in order to set supply/demand/pricing under their control. That's why they converted Big Pine Key, that's why they tore down a Garden Wing of the Contemporary, converted a wing of Wilderness Lodge and converted it to CCV.

Hotel room supply is tightly controlled by Disney.

Re-sale DVC availability is simply growing. Commercial actors can't just buy up contracts -- that's strictly forbidden in the contracts. Yes, you can have point rental companies rent points. But those will get cheaper and cheaper as the market saturates.

I agree that there is a price relationship between rack rate and DVC re-sale pricing. But the DVC pricing discount gets bigger as supply increases.

ie -- If there was only 1 DVC property in the whole world for rent/sale... and you had hundreds of people looking for a way to save money from rack rate..... That DVC property could rent/resell for only a 5% discount compared to rack rate (for example).
But if there are 10,000 DVC properties in the world for rent/sale... and hundreds of people looking for a way to save money from rack rate... those DVC properties may need to offer a 50% discount compared to rack rate, maybe even more.

Supply/demand is a basic economic fact. Same is true of point rentals and contract resales.

Renting isn't being done on a huge scale right now because DVC is relatively expensive, which is why there are always more renters than points on the market. Scrolling through Facebook shows you that. I'd argue renting is a bad idea mathematically for most right now, and I'd say the market agrees. If we reach a time when there are more points than renters, we are in real trouble. And Disney cares at that point, because again the comparison is hotel rooms.

Resale, at least if you didn't buy Aulani or RIV, is a function of the hotel rooms, and I'm not worried about those. For resale in the short run, I'd feel quite confident buying Poly1/VGF/BLT right now. My hesitation is about Disney in general and how timeshare-y DVD is acting. I do believe they have the ability to destroy DVC as a brand over time and turn it into another timeshare.

 

[RivShore]

There is no "saturation point," because the comparison is always hotel rooms. If DVC gets too cheap, commercial actors will just take the best reservations and rent out the points. This even works with resale restrictions.

Renting isn't being done on a huge scale right now because DVC is relatively expensive, which is why there are always more renters than points on the market. Scrolling through Facebook shows you that. I'd argue renting is a bad idea mathematically for most right now, and I'd say the market agrees. If we reach a time when there are more points than renters, we are in real trouble. And Disney cares at that point, because again the comparison is hotel rooms.

Resale, at least if you didn't buy Aulani or RIV, is a function of the hotel rooms, and I'm not worried about those. For resale in the short run, I'd feel quite confident buying Poly1/VGF/BLT right now. My hesitation is about Disney in general and how timeshare-y DVD is acting. I do believe they have the ability to destroy DVC as a brand over time and turn it into another timeshare.

Was just about to say the same - cash rooms set the floor, there is no question about that.

 

[Sandisw]

I did have a thought about pricing. We do tend to use the average price based on what buyers have been able to get contracts.

But, because DVD has the power to step in and buy things, they impact that in some way.

I wonder how the numbers look when you take a seller’s mindset and what are people currently willing to accept, based on what DVD has been able to pick up.

For example, lets pretend ROFR wasn’t in existence…how would that lower the average price?

I know I am seeing more and more contracts at SSR sitting there with lower prices…so, is that a sign that sellers are willing to take less, but buyers won’t try due to ROFR?

I sold my SSR at $120 this year, even though I knew it wouldnt pass. Obviously, a resale value is going to be based on buyers, but just thought it might be an interesting topic.

 

[RoseGold]

Re-sale DVC availability is simply growing. Commercial actors can't just buy up contracts -- that's strictly forbidden in the contracts. Yes, you can have point rental companies rent points. But those will get cheaper and cheaper as the market saturates.

Purchases by for-profit corporate entities, like LLC, and renting are specifically in the DVC paperwork. If I were buying DVC direct, I would actually do it as an LLC.

I have both rented and purchased from straight up realty groups that do this professionally.

I guess you are arguing that there are too many Disney hotel rooms and too many DVC rooms. That certainly isn't true now with how they are all sold out, and how booked DVC is. It's not like Poly2 is going to be the size of SSR, and that's all that's coming in the next two years. So I'm not sure what would have to happen for this to be "too much" inventory. I'm interested to see the scale of Poly2 actually, I don't think it will be so big, like the grand Reflections kind of 900 room plans.

I guess I can imagine larger structural change, like Disney not being cool anymore, or DVC and Disney in general all being as rundown as Boardwalk. Or DVC building Aulani2 and flooding DVC with off-brand points. But that doesn't seem likely in two years.

 

[Sandisw]

Purchases by for-profit corporate entities, like LLC, and renting are specifically in the DVC paperwork. If I were buying DVC direct, I would actually do it as an LLC.

I have both rented and purchased from straight up realty groups that do this professionally.

I guess you are arguing that there are too many Disney hotel rooms and too many DVC rooms. That certainly isn't true now with how they are all sold out, and how booked DVC is. It's not like Poly2 is going to be the size of SSR, and that's all that's coming in the next two years. So I'm not sure what would have to happen for this to be "too much" inventory. I'm interested to see the scale of Poly2 actually, I don't think it will be so big, like the grand Reflections kind of 900 room plans.

I guess I can imagine larger structural change, like Disney not being cool anymore, or DVC and Disney in general all being as rundown as Boardwalk. Or DVC building Aulani2 and flooding DVC with off-brand points. But that doesn't seem likely in two years.

Renting for commercial purposes is strictly prohibited in our contracts.

So, any LLC created..which is allowed..is still going to be held to the standard thst DVC sets.

One entity can still only own no more than 8000..I think..points

So, there are still controls in place. And remember, the definition of commercial purposes is up to DVD..

The whole more than 20 on a membership over rolling 12 months can be amended at any time. Nothing requires DVD to keep that definition as what is “for commercial purposes”.

It’s why rental brokers work because the rentals come from thousands of memberships which is what keeps it non commercial

 

[havoc315]

Purchases by for-profit corporate entities, like LLC, and renting are specifically in the DVC paperwork.

The DVC paperwork specifically forbids point hoarding. The contracts explicitly prohibit any entity from owning more than 4,000 points in 1 resort or more than 8,000 points overall. So no, LLCs can't go buying up tons of properties.

I have both rented and purchased from straight up realty groups that do this professionally.

I guess you are arguing that there are too many Disney hotel rooms and too many DVC rooms.

No. Not at all. The market for wanting to book a hotel room for a single stay is very different from the market that wants to buy up a contract for 25 years worth of stays.

In fact, if the market was as strong as you suggest -- Then Riviera and Aulani and VGF would all be 100% sold right now.
After all, the resorts are nearly 100% booked up most of the year. Yet, despite being booked up nearly 100% of the time -- Their DVC is nowhere near sold out.

Look at it this way -- If over the course of 10 years..
The number of hotel rooms goes from 30,000 to 30,000... (stays the same)
But the number of DVC contracts on the resale market goes from 1,000 to 50,000 ---

What's going to happen to DVC resale?

It's odd to suggest that re-sale prices can't decline -- When they have already been declining for the last year. In real constant dollars, DVC re-sale has declined by over 10% in the last year. (Inflation has been 8.3% over the last year. In the last year, Grand Floridian resale average has dropped from about 195 to 175 -- that's a 18% drop in constant dollars. Poly and CCV both dropped by about $10 in the last year... adding in inflation, that's a 13% drop. Saratoga Springs and OKW have both dropped by about $3-$5 over the last year.. adding in inflation, that's a 10% drop.) So over the last year, we have seen prices drop by 10-20% overall.
How is the 10-20% drop over the last year consistent with your theory? Has rack rate been reduced by 10-20% in the last year?

 

[Ruttangel]

Resale value has gone up significantly in last 2 years and even a 10% drop across the board would still put it in a healthy place in the long term trends. AKV getting taken at $140 but I bought that in 2019 for $100, even a drop to $126 would be fine. Anyone buying now at $140+ may have to wait longer for a profit but holding for 5 years and making a small loss is still cheaper than rack rate or buying AKV direct.

You could also argue resale has benefited from the fact no AP sales make the direct purchase less financially beneficial. If you buy where you stay what are the perks for direct right now?

 

[RoseGold]

The DVC paperwork specifically forbids point hoarding. The contracts explicitly prohibit any entity from owning more than 4,000 points in 1 resort or more than 8,000 points overall. So no, LLCs can't go buying up tons of properties.

It's not like it's hard to make thousands of LLCs. It's not like you have to hold a bunch of any kind of business in one LLC.

The biggest piece of actual data against your whole theory is that the rental pricing has finally gone up. I'd argue it was too low for a long time (and still needs to go up). Now, it has increased which shows there isn't enough points or Disney hotel rooms in general, at least right now. If Disney were saturated, that wouldn't be happening.

 

[Disney World Dad]

Yes, you can have point rental companies rent points. But those will get cheaper and cheaper as the market saturates.

I agree that there is a price relationship between rack rate and DVC re-sale pricing. But the DVC pricing discount gets bigger as supply increases.

ie -- If there was only 1 DVC property in the whole world for rent/sale... and you had hundreds of people looking for a way to save money from rack rate..... That DVC property could rent/resell for only a 5% discount compared to rack rate (for example).
But if there are 10,000 DVC properties in the world for rent/sale... and hundreds of people looking for a way to save money from rack rate... those DVC properties may need to offer a 50% discount compared to rack rate, maybe even more.

Maybe, maybe not. Supply is one thing that we know WILL increase. This is a certainty as Disney builds/converts more rooms to DVC.

Demand is an unknown. Will demand increase to a point where it will keep up the current rate of demand where the market will not be over saturated? It all depends on how well educated the consumer is/becomes. Renting DVC is well documented on sites such as this and is spoken about as common knowledge, but for many of the 58+ million visitors each year to Disney World, they have zero knowledge that they can rent points to save big off of rack rates. While more people are learning about this each year, DEMAND increases and helps to keep up with the supply. Whether or not this increased demand keeps up with the increased supply is an unknown factor at this time.

I'm sure the major rental companies can get a sense of this though from their data points gathered over the last few years of total rental requests vs points on hand vs increase in points that Disney puts out, but it is not something we are going to know.

 

[havoc315]

It's not like it's hard to make thousands of LLCs. It's not like you have to hold a bunch of any kind of business in one LLC.

The biggest piece of actual data against your whole theory is that the rental pricing has finally gone up. I'd argue it was too low for a long time (and still needs to go up). Now, it has increased which shows there isn't enough points or Disney hotel rooms in general, at least right now. If Disney were saturated, that wouldn't be happening.

Actually, the rental pricing hasn't increased. You keep forgetting inflation.

But as I showed -- resale pricing has dropped by 10-20%. How do you explain this huge drop in resale pricing over the last year?

 

[Nursemanit]

Actually, the rental pricing hasn't increased. You keep forgetting inflation.

But as I showed -- resale pricing has dropped by 10-20%. How do you explain this huge drop in resale pricing over the last year?

There was a bubble - just like in homes

Do a 5 and 10 year trend not 12/months

 

[havoc315]

Maybe, maybe not. Supply is one thing that we know WILL increase. This is a certainty as Disney builds/converts more rooms to DVC.

Demand is an unknown. Will demand increase to a point where it will keep up the current rate of demand where the market will not be over saturated?

Absolutely true!! It is absolutely *possible* that demand for DVC resale suddenly skyrockets with the skyrocketing supply.

But given our population isn't growing massively.... given that it's not like Disney is going to get massively more popular as a destination than it already is....
Heck, even given global warming making Orlando a less hospitable place over the next 20 years..

It's hard for me to imagine demand growing enough to match the massive increases in supply.

It all depends on how well educated the consumer is/becomes. Renting DVC is well documented on sites such as this and is spoken about as common knowledge, but for many of the 58+ million visitors each year to Disney World, they have zero knowledge that they can rent points to save big off of rack rates. While more people are learning about this each year, DEMAND increases and helps to keep up with the supply. Whether or not this increased demand keeps up with the increased supply is an unknown factor at this time.

I'm sure the major rental companies can get a sense of this though from their data points gathered over the last few years of total rental requests vs points on hand vs increase in points that Disney puts out, but it is not something we are going to know.

While I would certainly expect there to be a correlation between rental and re-sale, it is likely not a perfect correlation. People renting points for a 1-time use are not the exact same market as those willing to buy a 20 year contract.

So yes, some correlation -- Increase in resale prices and rental prices would typically go together. But there is space between them. Generally speaking, for resale, a contract price has to be cheaper than renting the points. How much cheaper -- again, supply/demand.

 

[havoc315]

There was a bubble - just like in homes

Do a 5 and 10 year trend not 12/months

Plausible. Though 10-20% is a sizable correction. But let's indeed see where we are in 5 years.

 

[Nursemanit]

Maybe, maybe not. Supply is one thing that we know WILL increase. This is a certainty as Disney builds/converts more rooms to DVC

The only thing we know is that PVB may be built and it may have 150-300 rooms..

DVC could look at trends and not build another WDW hotel for 20 years

 

[DonMacGregor]

Anyway, I believe we are entering a negative period for resale values, not just at restricted resorts or 2042 resorts. Resale pricing is mostly set by free market supply and demand. The caveat being ROFR. Disney isn't actually setting a "floor" with ROFR, they are simply buying the cheapest contracts set by the free market -- that doesn't exactly create a floor, but it does boost demand and provide a boost to prices because of the increased demand.

Back to supply and demand: Disney has tight control over the supply of direct points. They decide when to build and sell a new resort. They can add more direct points to the market using ROFR, foreclosures, etc. They can reduce the number of direct points on the market by using DVC properties for cash bookings.

On the other hand -- The supply of resale is always going up. Each time they build a new resort, it increases the supply of resale. The older DVC owners get, the more likely they are to re-sell their points.
So there may be some month to month fluctuation, but in the long term, the number of resale contracts on the market is always increasing.

If demand isn't increasing in line with the increase in supply, prices will drop. Disney artificially reduces the demand for these resale contracts with various restrictions: the resale restrictions on Riviera, the inability of legacy resale to use Riviera and future resorts, blue card perks, etc. But even without these drawbacks, eventually the demand for DVC can't keep up with the ever increasing supply. We hit a saturation point.

The question in my mind is: as the supply of resale prices potentially increases, coupled with demand decreases, and resulting price adjustment (drop), will that glut of resale points, even with restrictions, still drop to a price point that manages to erode direct sales. At some point, the bad taste of resale restrictions may not be enough to push potential buyers to forego the benefits of unrestricted direct pints in favor of the savings promise by (albeit restricted) resale contracts. Especially in a depressed ROFR scenario.

I guess my real question is: at what point do you reach Direct Point saturation?

 

[RoseGold]

It's hard for me to imagine demand growing enough to match the massive increases in supply.

What "massive increase" are you talking about? A couple hundred Poly rooms? Or the DLT, which would probably already be completely booked if it were open. Cuz that's it for two years.

Demand is there. Just scroll on Facebook and you'll see all the people who want points. Sure, they don't want to spend five figures on it. But they want points.

Sure, if DVC resurrected Reflections and tried to sell 900 rooms of that along with millions of Aulani points AND 4M RIV points and maybe a .5M of VGF2 left, it probably wouldn't go well. But they'll be able to sell through a small building with a fantastic location, even with resale restrictions.

I actually agree that RIV's straggling points years later (and poor Aulani's) do show some level of saturation. But to me, that tied to the overall cost of the product relative to the other choices (and the resale restrictions). If you're right about resale prices crashing or prices in general crashing, they will come. Heck, even I was tempted when Pete bought Aulani firesale. Even if it's Boardwalk in its current sad state, it's still a Disney hotel. And it still has a cash room comparison.

The place you were right about saturation was Aulani. It's still for sale, it will be for sale to my grandkids at this rate.