The Economy and DVC

[tvwalsh]

I sold three contracts last year and watched the money from them disappear. Everything costs so much and there is so much available to buy, that it is hard to make any financial progress. Every day now the stock market takes its daily beating and my house is worth less than it was yesterday.

I don't think that DVC is immune to this financial dreariness. I expect that the number of resales available in the next year will soar and prices will fall. I expect that DVC will get very aggressive in both its marketing and incentivizing of its newest resorts.

The only up side that I see is that better deals are coming to those of you who have the money to take advantage of them.

 

[dianeschlicht]

I agree, and I think that may have something to do with the decision to delay any kind of announcement about a monorail DVC for the present. DVC has plenty of inventory, and if there is a sudden influx of a lot of contracts on the resale market, that will effect not only the resale price, but Disney's ability to sell out current inventory.

I think if you look at how well the new extended contracts for OKW are being sold direct from Disney, you see a bit of that. OKW has better point schedules and good maintenance fees, so folks are planning for there to get more bang for the buck so to speak. They can get by with fewer points to start with and low maintenance fees and still have the extneded number of years.

I think DVD KNOWS that it is going to have to charge too much for CRV, and will likely have a high point schedule there as well. My guess is that what happens with sales of AKV, SSR, OKW and GCV in the next year will determine when or even IF CRV becomes a reality. I also expect Hawaii to be greately delayed.

 

[disissue]

I also agree, when we made our original purchase 12 years ago that was prior to the woes of 45,000 a year for colleges, now my DH and I dealing with the present economy cannot afford the same life style as when the girls were in grammer school. I think families who want to invest in DVC will start to be creative in their pursuit to purchase (it still was the best investment we ever made) a DVC membership. This is what we have done to make this work, my brother who has younger children wanted to purchase so he added on to my original ownership he is an associate on the account so he can make his own reservations and he pays directly to me the monthly dues. If he needs additional points he uses some of my 350 points and we agree on a dollar amount, which in turns helps me out with the carrying costs. I inform him of how many points are up for grabs in the use year and we take it from there. Some ask how will this be taken care of if something were to happen to any of us... it is stipulated in a contract between us how the DVC membership is to be left. This will only work if it as treated as a business on paper so there is never any hard feelings. All around it has made it more cost efficient for everyone. I think also if DVC is going to make this a success in the coming years they are going to have to give away some perks as part of a purchase. Us as a family getting to disney is not the financial drain it is the cost of park admission, food and entertainment. Now when we go we really put that kitchen to good use and are very creative in our park visits my 21 year old is the master of the park hopper!

 

[rsinj]

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[starbox]

About 2 years before we bought DVC, we stayed at the SWAN. This was not that far after 9/11. I had never seen the BW/BC/YC area before and we walked around. I remember it being like a ghost town - really stuck me as odd. I remember wondering/speculating that maybe people bought DVC based on looking at the monthly payments and figuring they could make them work - then not realizing just how much it was going to cost for
transportation/tickets/dining/etc - and then just not being able to use their points. I can't think of another timeshare that carries with it such enormous OOP expenses. Especially with most families choosing to have three or more children - once those kids all have to have park tickets, or adult park tickets and adult meals - it adds up!

I absolutely agree that DVC (and Disney) is going to feel the financial pinch.

 

[starbox]

Makes you wonder how many subprime loans DVC is holding - as I'm sure there are many DVCers who bought in over the past few years simply because they could get financing, even though they really couldn't afford it.

Next few years should be interesting.

Well, in theory - Disney requires 10% cash down on their financing and won't finance more than 10 years - which seems like a pretty solid system.

But, in practice....I wonder how many people put down payments on credit card or financed themselves w/subprime refinancing or some other mess of a thing. I know Atlanta was inundated by shady mortgage ads promising people all this extra money if the refinanced their homes.

It was bad news.

 

[JimMIA]

Makes you wonder how many subprime loans DVC is holding - as I'm sure there are many DVCers who bought in over the past few years simply because they could get financing, even though they really couldn't afford it.

Next few years should be interesting.

I'd bet subprime loans are a pretty high percentage of their mortgage portfolio, based on some of the threads I've seen here over the last few years...including last week.

I'm sure they've already got some issues, and I expect them to tighten up on their credit policies.

 

[keishashadow]

I feel for the OP, so sorry to hear

while it's a buyer's real estate market; not sure how that translates to timeshares, especially DVC?

While the resale market will see more activity, not sure how many bargins will be forthcoming with ROFR in place.

Disney has deep pockets to weather this storm, however, i'm wondering if the dues reflect cost of ROFRs & loan writeoffs?

 

[rsinj]

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[rsinj]

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[JimMIA]

Well, in theory - Disney requires 10% cash down on their financing and won't finance more than 10 years - which seems like a pretty solid system.

Not really -- a bad loan is a bad loan. When they make loans to folks at 14.5% and require 25% down, they are just trying to limit their exposure with a customer who can't afford DVC in the first place.

Also, I'd expect DVC's mortgage portfolio to be weak for another reason. Many people finance DVC initially who don't really need to, or have better sources of financing. Those folks -- the most creditworthy of DVC's financing customers -- pay their loans off early. Some people finance with Disney, go home and get a home-equity loan at half the interest rate, and then pay DVC off immediately. The only people Disney ends up with on their books are those who don't have other options...and they tend to be the weaker credit risks.

 

[SSRFred]

This is a great thread. I'm sure the economic clime has much to do with the delay in announcing how much (if any) of the new Contemporary will be DVC.
I'm sure new DVC's will continue to do quite well in the coming years, especially in this market. Fractional ownership of luxuries was designed for situations like this. DVC will probably benefit from the trickle down effect. People considering more expensive TS's may opt for Disney, especially with HI and the possible Caribbean expansion.
However, the resale market may get hurt and indirectly Disney because of ROFR.
I read a rumor about Disney hiring more guides, this is probably why. We may see a larger spread between point prices in the resale market. Ultimately it's all about the maintenance fees. If DVC calculates you can afford the MF's, they may not exercise ROFR on some bargains.
In my business, high end luxuries were what carried us through during the hard times in the 80's and 90's. DVC will continue to sell well. Just don't expect a fair swap between current contracts and future contracts.

 

[JimMIA]

Disney has deep pockets to weather this storm,

Disney's pockets are not particularly deep. If you want to see truly deep pockets, go look at Microsoft's financial reports.

Also, virtually all of Disney's businesses are very cyclical. Disney is the kind of company that gets hit hard across the board in a recession, because all of their businesses depend on discretionary income. Whether we go to a movie, or Disney on Ice, or WDW...the money for that is extra money we have for entertainment.

 

[3DisneyKids]

It will certainly be interesting to see how things are affected. DVC is, of course, a luxury item. Right now, that sector seems less affected than others.

 

[granmanh603]

Doesn't Disney just get the points back and resell them???? Seems like a pretty good deal to me.

 

[JimMIA]

Just for grins, I looked up Microsoft and Disney's financials.

Just looking at cash, Microsoft had $23.4 Billion on their 2007 year end financial statement. That's actually down a lot. In 2004, they had $60.5 Billion in cash. They had so much cash they couldn't find profitable places to put it, so they started paying out dividends to their stockholders...which we appreciate!

Disney, on the other hand, had $3.6 Billion in cash. That's not as much money as you think when you consider that Disney is a global company...especially when you consider the cyclical nature of their business.

 

[dianeschlicht]

Not really -- a bad loan is a bad loan. When they make loans to folks at 14.5% and require 25% down, they are just trying to limit their exposure with a customer who can't afford DVC in the first place.

Also, I'd expect DVC's mortgage portfolio to be weak for another reason. Many people finance DVC initially who don't really need to, or have better sources of financing. Those folks -- the most creditworthy of DVC's financing customers -- pay their loans off early. Some people finance with Disney, go home and get a home-equity loan at half the interest rate, and then pay DVC off immediately. The only people Disney ends up with on their books are those who don't have other options...and they tend to be the weaker credit risks.

I totally agree.

 

[browniemtb]

Doesn't Disney just get the points back and resell them???? Seems like a pretty good deal to me.

That is what I was thinking as well. If someone defaults on a DVC loan than DVC can just pull the points back. That is if the loan is through Disney. Now if the loan is not through Disney, say a home equity gone bad, than I would assume the bank owns the points and would have to sell them on the market or back to Disney to recoup some of the cash.

Brownie

 

[dianeschlicht]

That is what I was thinking as well. If someone defaults on a DVC loan than DVC can just pull the points back. That is if the loan is through Disney. Now if the loan is not through Disney, say a home equity gone bad, than I would assume the bank owns the points and would have to sell them on the market or back to Disney to recoup some of the cash.

Brownie

Yes, in that case, Disney would likely still get them back via ROFR.

 

[rsinj]

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