Resale restrictions and sale prices analyzed

[dmunsil]

Another weekend spent crunching numbers...

The other day, wdrl asked me if I could "prove" that the resale restrictions reduced the resale value of people's ownership. I was kind of taken aback because it seems so self-evident that I'd never considered that you would need to prove it. And of course you can't really "prove" something like that. You kind of have to rely on common sense and economics.

But it got me thinking that it would be interesting to see what the average prices paid for DVC points before and after the restrictions kicked in. So I did that. There's no way I could do every DVC deed, so I focused on my own home resort, Boardwalk. I looked at a one-year period centered on March 2011 when the restrictions kicked in.

The restrictions were for any resale contract that was submitted for ROFR after March 20, 2011. Unfortunately I don't know when people submitted the contract, only when Disney actually issues the waiver. So I arbitrarily calculated an "estimated" submission date of 30 days before the waiver release date. During normal times, that number is too high, since Disney usually gets the waiver out between 21 and 28 days, but the volume during the period between the announcement of the restrictions and the submission deadline got so huge I think Disney was taking more than 30 days on average to issue the waivers. So I think for this period, 30 is a decent estimate.

I also looked at sales volume to cross-check. The announcement was made January 18th, and the volume of waivers being released took a huge leap on about Feb 16th, so that suggests 30 days was a little long at that stage, but not crazy.

Later, it seemed like the volume let up right at about April 20th, but there was still slightly elevated volume until May 20th. After that Disney added a little note to every waiver, first just saying that they weren't responsible for checking whether the seller had all the points they said they had. About a week later they added the language that says that buyers shouldn't rely on the incidental benefits being transferred with the ownership. I don't know if that means they were way behind at that point, or whether there were a lot of submissions that required more than 30 days to process, or something else. But I'm calling the point where Disney added the new verbiage to the waiver the switchover point. I think that every deed transferred before that point was grandfathered in. It doesn't actually matter that much to the analysis.

There's a ton of noise in this data set, so some amount of time averaging was necessary to get a handle on the moving average price. I ended up generating a rolling two-week average of the price per point and plotting that against the date of the end of the two-week period. The date given is my estimated submission date, or 30 days before the ROFR waiver was issued.

I've divided the graph into three sections: Pre-Announcement, Announcement to Deadline, and Post-Deadline. I plotted a linear trendline for the pre- and post- periods to try to get a handle on the general price level for those periods.

I would say the bottom line seems to be that the restrictions were worth about 10% to the market, or $5-$6 per point of BWV at that time. That doesn't seem crazy to me. I think if Disney offered me the opportunity to get the restrictions lifted for $5/point, I'd think very hard about it (and probably not take the offer).

Below is the graph of rolling average prices for the period. It's fascinating to see the section there in the middle, as tons of people frantically tried to get their contracts in by the deadline. I'm also intrigued by the amazingly smooth U-shaped price trend during the first portion of the "countdown" period. My take on it is the baseline starts low, because the resale value of contracts had already gone down, but then there were buyers willing to bid prices up from that baseline to get a contract before the restriction. Then as the restriction approaches, people start offering less because they're not sure it's going to make it before the deadline. And then there's a little spike as people offered a lot, probably contingent on the sale being submitted before March 20th. And the dribble of contracts after that is just Disney working through the contract backlog.



And here's a graph of sales volume (in points rather than contracts):

 

[dmunsil]

Quick note: the first version of this post used a rolling average that was flawed, because of clustering. The clustering happened because Disney usually does waivers in large clusters roughly weekly, but were doing them every day during the countdown period when volumes were so high. I was trying to do a rolling average for each data element, but whenever there were many data points on the same day, I should have been lumping them all together, since I have no real reason to think one is "earlier" than another.

During the countdown, there were so many deeds transferred every day that the section during the countdown was very smooth. The rest of the time, deeds tended to cluster and my algorithm was making it look like each deed in a cluster had a different rolling average. I believe this algorithm is better, and produces a result that better reflects the "average" price for a specific period.

 

[dmunsil]

No one has any thoughts on this? I'm mildly surprised; I thought it would be more contentious given that two different people have told me they thought the resale restrictions didn't have much effect on prices.

 

[Missyrose]

My only comment is you can't really prove that the $5 or $6 per point the prices lost was because of the restrictions. They're depreciating contracts that will eventually be worth $0. I guess it's one of those instances where I don't think correlation = causation.

But I'm not a numbers person, I work with words.

 

[abner1776]

Well I am a numbers person...commonly referred to as a "pencil pusher" and my reaction to the analysis brings me back to one of my favorite movie quotes of all time..the move "Fugitive" - they are in the dam and Harrison Ford says to Tommy Lee Jones..."I didn't kill my wife" and Tommy Lee Jones replies......

 

[Sandisw]

And recently, the prices are back on the rise, and the restrictions are still in place. So, in that respect, other factors play a role and deciding that the restrictions were the reason rather than anything else, may or may not be the case. IMO, I think if it had an effect, it was a very small part in influencing price...I'd say it did more to drive the less informed buyer to direct and those that did a lot of research to cement that resale was the way to go..

 

[ELMC]

Well I am a numbers person...commonly referred to as a "pencil pusher" and my reaction to the analysis brings me back to one of my favorite movie quotes of all time..the move "Fugitive" - they are in the dam and Harrison Ford says to Tommy Lee Jones..."I didn't kill my wife" and Tommy Lee Jones replies......

I don't care.

 

[ELMC]

No one has any thoughts on this? I'm mildly surprised; I thought it would be more contentious given that two different people have told me they thought the resale restrictions didn't have much effect on prices.

Quite frankly, there are so many factors that go into resale pricing that I believe it is nearly impossible to disaggregate them in order to assign causation of price changes to one particular variable. So while your analysis is nice, and based on your recent posts I'm fairly confident that it is accurate, I do not think that it could be considered statistically valid. So based on this, there's really nothing to rebut because I don't think you've presented enough evidence to support your hypothesis.

The problem I have with this analysis is similar to the one I have with your ROFR analysis in that it does not include enough data. In the case of your ROFR analysis, you only looked at price per point and not the number of banked points in the contract. By doing so, your assumptions of the actual contract value were way off, and by extension so were your conclusions.

 

[Jason99]

you really need a hobby

Another weekend spent crunching numbers...

The other day, wdrl asked me if I could "prove" that the resale restrictions reduced the resale value of people's ownership. I was kind of taken aback because it seems so self-evident that I'd never considered that you would need to prove it. And of course you can't really "prove" something like that. You kind of have to rely on common sense and economics.

But it got me thinking that it would be interesting to see what the average prices paid for DVC points before and after the restrictions kicked in. So I did that. There's no way I could do every DVC deed, so I focused on my own home resort, Boardwalk. I looked at a one-year period centered on March 2011 when the restrictions kicked in.

The restrictions were for any resale contract that was submitted for ROFR after March 20, 2011. Unfortunately I don't know when people submitted the contract, only when Disney actually issues the waiver. So I arbitrarily calculated an "estimated" submission date of 30 days before the waiver release date. During normal times, that number is too high, since Disney usually gets the waiver out between 21 and 28 days, but the volume during the period between the announcement of the restrictions and the submission deadline got so huge I think Disney was taking more than 30 days on average to issue the waivers. So I think for this period, 30 is a decent estimate.

I also looked at sales volume to cross-check. The announcement was made January 18th, and the volume of waivers being released took a huge leap on about Feb 16th, so that suggests 30 days was a little long at that stage, but not crazy.

Later, it seemed like the volume let up right at about April 20th, but there was still slightly elevated volume until May 20th. After that Disney added a little note to every waiver, first just saying that they weren't responsible for checking whether the seller had all the points they said they had. About a week later they added the language that says that buyers shouldn't rely on the incidental benefits being transferred with the ownership. I don't know if that means they were way behind at that point, or whether there were a lot of submissions that required more than 30 days to process, or something else. But I'm calling the point where Disney added the new verbiage to the waiver the switchover point. I think that every deed transferred before that point was grandfathered in. It doesn't actually matter that much to the analysis.

There's a ton of noise in this data set, so some amount of time averaging was necessary to get a handle on the moving average price. I ended up generating a rolling two-week average of the price per point and plotting that against the date of the end of the two-week period. The date given is my estimated submission date, or 30 days before the ROFR waiver was issued.

I've divided the graph into three sections: Pre-Announcement, Announcement to Deadline, and Post-Deadline. I plotted a linear trendline for the pre- and post- periods to try to get a handle on the general price level for those periods.

I would say the bottom line seems to be that the restrictions were worth about 10% to the market, or $5-$6 per point of BWV at that time. That doesn't seem crazy to me. I think if Disney offered me the opportunity to get the restrictions lifted for $5/point, I'd think very hard about it (and probably not take the offer).

Below is the graph of rolling average prices for the period. It's fascinating to see the section there in the middle, as tons of people frantically tried to get their contracts in by the deadline. I'm also intrigued by the amazingly smooth U-shaped price trend during the first portion of the "countdown" period. My take on it is the baseline starts low, because the resale value of contracts had already gone down, but then there were buyers willing to bid prices up from that baseline to get a contract before the restriction. Then as the restriction approaches, people start offering less because they're not sure it's going to make it before the deadline. And then there's a little spike as people offered a lot, probably contingent on the sale being submitted before March 20th. And the dribble of contracts after that is just Disney working through the contract backlog.

 

[iluvthsgam]

I think it shows a correlation in the very short term, as you have graphed. But hard to make the connection to any long term lasting effect. The prices now are well above what they were then - even for a depreciating asset, so I do not think we could know what effect, if any, those restrictions have on current pricing.

But it is a very interesting analysis for the time frame.

 

[CarolMN]

I am not at all surprised that there was a rush to buy resale before the restrictions kicked in.

Cruising on the DCL on points is immensely popular with many DVC members. Because many on this board continually post that it is not a good value (to the extent that many actually feel attacked for their choice), we here tend to underestimate the appeal the option to use points for cruising has for a large part of the DVC membership. (And that also keeps many of those people from posting here as well. No one wants to feel like they make poor choices with their money).

I also think the popularity of cruising on points and the difficulty Disney had renting out the DVC villas sent to CRO/DRC without large discounts was a huge motivating factor behind DVC's decision to implement the restrictions in the first place.

 

[ELMC]

you really need a hobby

I think this is his hobby. Nothing wrong with that.

 

[ImagineerTHAT]

I think this is his hobby. Nothing wrong with that.

It's in his blood...he is a member of the Mouse Savers family! I appreciate what he does, as I would probably end up doing it myself one day.

 

[dmunsil]

Y'know, I agree with essentially everything said about correlation not being causation and there being many different factors to price levels. But I still think there's no other reason at that point in time for the price to drop that far that fast. As Randall Munroe, creator of XKCD, says: "Correlation doesn't imply causation, but it does waggle its eyebrows suggestively and gesture furtively while mouthing 'look over there'."

http://xkcd.com/552/

I can't understand anyone thinking that the restrictions have no effect on the price. The restrictions simply have to affect the price. That's not even complicated economics; it's the simple straightforward kind.

- Resale restrictions are designed to increase demand for direct sales.
- If they don't actually increase demand for direct sales, then Disney is just imposing them to be petty, so let's assume they actually work.
- If direct sales demand increases, resale demand must decrease, relatively speaking.
- If resale demand decreases, the resale prices go down.
- There may be other factors affecting the price, but they are independent of the resale restrictions. The price can go up in an absolute sense, but still be below where it would be if the restrictions were not in place.

This is so basic and straightforward that I find it difficult to understand why there's any doubt about it. Sure, the "restriction price factor" might not be $5 at this point. It might be less. It might be more! But it's not zero. Right?

 

[DougEMG]

The initial effect that the resale restrictions had was to increase the resale price as people rushed to get in under the deadline.

Once the restrictions came into effect, prices dropped. Resale prices continued to drop till around Jan-May 2012. Did this have anything to do with the resale restrictions, I doubt it.

Since the summer of 2012, resale prices have been going up and are the highest they have been in years.

Personally I believe that the resale restrictions are old old news and have no effect on current pricing. Even if Disney made an offer now to remove the current restrictions that would only be worth pennies a point to me. Now if they offer to make all my resale points equal to direct points, that would be more interesting and I would pay a couple of dollars a point just for the added insurance.

 

[ELMC]

I can't understand anyone thinking that the restrictions have no effect on the price. The restrictions simply have to affect the price. That's not even complicated economics; it's the simple straightforward kind.

Who said that?

The problem I have with all of these discussions involving economics and DVC is that they mostly consist of people trying to manufacture evidence to support their theories. In the process they overlook or omit data that does not help accomplish their objectives. Economics is a social science and as such has many components that are not absolute and are subject to debate. It also attempts to quantify behavior and psychology, which can be extremely difficult. So while discussing the theoretical might be enjoyable for some, I personally view it as nonproductive.

 

[dmunsil]

...they mostly consist of people trying to manufacture evidence to support their theories.

Y'know, I'm really trying not to take offense at this statement, and having a very difficult time. I did not sit at home entering data from 500 deeds last weekend in an attempt to "manufacture evidence". I did it to try to answer a question. There's a difference. I don't know if you think it's not possible to objectively use data to investigate a question, or whether you think it's impossible for me to do so. Either way, I categorically disagree with that idea.

I did not know what I was going to find by looking at these numbers. I thought there was a chance that the price really wouldn't change much before vs. after the restrictions. I thought there was a chance that the data set would be too noisy to show anything.

But neither of those things happened. Instead what I see is clear, unambiguous evidence that the restrictions lowered the value of resales by what to me is a significant amount. I'm still mystified as to why people think otherwise, or that the restrictions don't really have an effect on the resale price. If they don't have an effect on the resale price, they aren't working. If they aren't working, then Disney isn't even getting any value from them. I prefer to think Disney is trying to make money rather than thinking Disney is just being petty.

It doesn't really matter much to me; I bought after the restrictions were added. But if they add more restrictions, I am going to be extremely disappointed. Heck, I'm already disappointed. I thought Disney was trying to run a better timeshare than the rest of the industry. Of course, that's not a super-high bar to get over.

 

[DougEMG]

It doesn't really matter much to me; I bought after the restrictions were added. But if they add more restrictions, I am going to be extremely disappointed. Heck, I'm already disappointed. I thought Disney was trying to run a better timeshare than the rest of the industry. Of course, that's not a super-high bar to get over.

I bought for the sole purpose of staying at my resort. None of the perks are worth anything to me so I place no value on them. The restrictions are just a reduction in perks and no one shouldn't be buying DVC because of a perk since Disney can remove a perk from a direct buyer as easily as they can remove it from a resale buyer.

 

[Brian Noble]

I thought it would be more contentious given that two different people have told me they thought the resale restrictions didn't have much effect on prices.

They *shouldn't* have much of an effect in a rational market, because the "restrictions" are a gift in disguise. The "restricted" options are nearly always bad deals vs. just renting your points out and using the proceeds to book the hotel, cruise, or guided tour you desire---even if you rent at the bottom end of the price range or use a broker to make the rental process as painless as possible and forgo some of the potential revenue.

But, people being people, the market isn't always rational.

And, if you've not seen it before, you should watch the Stand-Up Economist on the subject, particularly Principle 3 (though they are all great):

http://www.youtube.com/watch?v=VVp8UGjECt4

 

[Brian Noble]

If they don't have an effect on the resale price, they aren't working. If they aren't working, then Disney isn't even getting any value from them.

I have a slightly more nuanced view. They aren't necessarily intended to affect the resale price. Indeed, DVC would probably prefer that resale prices be higher, not lower---lower prices make resale contracts more attractive for people intending to use them for DVC lodging.

Instead, I believe they are intended to support direct sales. Supporting direct sales is not necessarily the same as discouraging resale purchases, because timeshare is a product that is sold, not bought, and the market is relatively opaque.

People who truly understand the resale market and have done their homework realize that the restrictions don't matter, for the reason I mentioned above---renting points and using cash to book is better than booking with points. Those people will not be swayed by the current set of restrictions. And, those are the people by and large who are buying resale, because they've done the homework to understand how things work.

But, such a person is not the target of the restrictions. The target, instead, is the casual visitor on the DVC tour who has heard that a resale market might exist, and might even know a little something about pricing, but hasn't really worked out the costs all the way through. Despite this knowledge, the Guide still needs that guest to (a) sign on the line that day and (b) not rescind within the cooling off period.

If such a tour guest brings up the resale market, the Guide has a ready-made set of reasons why the guest should dismiss that silly thought from their minds, and just buy today. Tie that in with the essential marketing of timeshares in the first place---they are aspirational purchases in most cases---and many new purchasers will not be in a hurry to convince themselves that they made the wrong decision. Even if they start digging, the restrictions give them added comfort that their decision was the right one. The restrictions are, apparently, enough to keep their tour conversion rate above target and rescind rate below. And, that's all any potential "restrictions" need to accomplish.

That said, the restrictions probably do have some impact on the margins, because not everyone can or will do the work to evaluate their value. But, having watched many other timeshare systems go through the same thing, it's my opinion that resale prices are impacted more significantly by macroscopic changes in supply and demand. And, remember: the market is fragmented. Almost no one wakes up in the morning thinking to themselves, "Today I'm going to spend thousands of dollars obligating myself to decades of upkeep of (part of) a luxury vacation condo." But, DVC as a system keeps growing, as do all timeshares in active sales. At any point, some fraction of owners will be looking to sell for a variety of reasons: divorce, the kids outgrow it, change in financial or health circumstances, etc. All things being equal, the supply of resale contracts increases over time. Unless the supply of ready and willing buyers *also* grows over time, prices fall. It's certainly not in Disney's interest to develop that pool of ready and willing resale buyers, and so you can see where this ends eventually. DVC has a more transparent resale market than most, but even so---it's a complicated product that has few analogs in the daily lives of most potential purchasers, so the market doesn't develop naturally.