The Economy and DVC

[Mickey'sApprentice]

Really, I would have thought that the south gets hit harder during recessions. It has in every other one.

Gee, I just logged back in and found comments about my Southern comments.

Demographic trends have been favoring both the South and Southwest for quite some time now. Auto manufacturers have been locating in the Southeast, thus creating jobs. The business climate is not friendly to unions in the South, and states are giving away the state treasuries to attract the plants.

However, it just strikes me odd that you are much more likely to see somebody at DVC (or WDW for that matter) from Long Island than from Atlanta, especially since the family from Atlanta can drive and not have to pay airfare.

 

[snowbunny]

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.

Yes - I remember many many posts in the past 18 months in which Disers said they were taking out home equity loans to buy DVC.

Now that the paper equity has dried up and millions of people are under water with loans higher than the value of their homes, there will most likely be a flood of DVC resales.

The housing market still has a long way to go to hit bottom, as well.

 

[crisi]

The business climate is not friendly to unions in the South, and states are giving away the state treasuries to attract the plants.

I have a friend who does environmental impact studies for businesses. There are two kinds of states "eco friendly" states and "business friendly states." The more eco friendly you are the harder it is to get businesses to build there. However, he says some of the "business friendly states" are so bad he wouldn't want to raise kids there - they are letting businesses throw that much garbage into the environment that in his professional opinion (and he has a PhD in this) it isn't healthy to live there. The Southeast is notoriously "business friendly."

 

[ead79]

I think that eventually if the economy gets bad enough, DVC will take some sort of a hit. However, you see lots of people still spending income on discretionary things (whether or not they should be) even during tough financial times. Some of these folks have plenty of income to weather a financial storm, so they can still buy DVC. Others live on credit during rough financial times, so since DVC offers financing, they might still buy.

What is interesting here, however, it the assumption I've noticed several times that many of us who financed our DVC membership are on the verge of defaulting. While we didn't have $16,000 in cash, we can easily make our monthly payment and annual dues payment. We never know the financial hand that will be dealt to us, but it's silly to assume that many of the financed memberships are going to be unable to pay. If we go through a really rough financial time (something catastrophic like DH losing his job, a health crisis with ridiculous medical bills that insurance doesn't cover, etc.), then we would sell our DVC before we defaulted on the loan. I'm sure that DVC does have some people default on their loans (everyone who offers credit has some defaulters), but that's not the majority or they wouldn't offer financing. We looked at the numbers in detail before making our decision to join DVC. It just made more sense for us in the long-term.

 

[Disney_Daddy]

The Southeast is notoriously "business friendly."

Crisi: I was a little bent as I read this quote. But after investigation, I reluctantly agree... In a list of "Green" states at Forbes.com, Florida ranks 20, Georgia was 29 and Alabama 49. Louisiana, Mississippi, Kentucky and Arkansas are all trolling the bottom of the list. New York and New Jersey made the top 10...go figure.

In regards to the original topic, I'm in the mortgage business so I can relate to others and completely "feel your pain!" But this is exactly the reason we purchased DVC. We pre-paid for our vacations so that during a slow economy, we would be able to go to Disney with the kids. Instead of feeling bad about splurging on a vacation, we can go guilt free and have a fabulous time.

Best,
Trace

 

[crisi]

Forbes list isn't a one on one match to what I'm talking about - but its an indicator. I'm talking more about the number and quality of laws and regulations each state has on their books. California is an eco-friendly state from a regulatory standpoint - but due to issues with population density, traffic, fertilizer, water quality, etc., they are less "green" then the current regulations on the books would imply.

 

[pilferk]

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.

Luckily for Disney, it doesn't much matter.

Because any subprimes carry almost zero risk. If someone can't pay their monthly, or even their dues, Disney just stops allowing them to use the property, and "reposesses" (at minimal cost) the points to resell them.

Now, for the "subprime" lendee...who can't make their payments, I agree. It's bad.

 

[crisi]

Luckily for Disney, it doesn't much matter.

Because any subprimes carry almost zero risk. If someone can't pay their monthly, or even their dues, Disney just stops allowing them to use the property, and "reposesses" (at minimal cost) the points to resell them.

Now, for the "subprime" lendee...who can't make their payments, I agree. It's bad.

Its actually a PLUS for Disney.

They got your 10% (or more) up front. They've been collecting interest from you for a few years (and a little principal) at a higher than market rate. Plus the dues, so it isn't like they are out maintenence. You stop paying, they repo, they don't refund any of your money. They then resell your interest for full price - or if the market is down - sit on it until they can while renting it out when they can.

Its the reason the sub-prime market was so attractive on housing - all these financial companies thought they were going to make money on the downpayment and the interest, then resell an appreciating asset after repo. They simply seemed to completely forget that if everyone did this, the supply of houses would skyrocket, demand would fall and prices would fall - and they'd be holding paper on property they couldn't resell without taking a loss. But Disney doesn't really NEED to resell their property if they reposses it.

 

[pilferk]

We may not be in recession yet however consumer spending is way off. As an HVAC business owner in the Washington DC area (normally recession proof) I have seen about a 45% drop in business over the past 8 months. I have actually had homeowners tell me they will have to passed on getting their heat system repaired or replaced because they can not afford it at this time. That being said those with disposable income are still spending, proof in point go out to eat on Friday or Saturday night and wait up to 2 hours for a table at Olive Garden or Outback.

I believe it, especially considering your business.

ANY business depending largely on credit users, especially home improvements which are largely done by 2nd mortgages, HELOC's, etc, is going to feel the heat (if you'll excuse the pun) first.

The smaller expenditures, which fit into the monthly budget (like dining out, or the movies) don't seem to be getting hit as hard...at least not yet...because they aren't dependant on credit but more on job/employment status.

 

[pilferk]

Global markets just had a huge selloff over the weekend......dow was gonna open down 500 until Paulson just announced the Fed is gonna pump more billions of dollars into the economy. Good news for those waiting to pass ROFR..........................

That .75 point rate cut might help quite a bit. We're starting to approach "crazy' rates, like we did back 3 years ago, or so.

The question is: Who will qualify for those rates, with the new credit restrictions, and will they be of any use to "ma and pa" consumer? Will they stimulate housing prices the way the fed hopes they will...like they did last time?

We'll see.

 

[pilferk]

Its actually a PLUS for Disney.

They got your 10% (or more) up front. They've been collecting interest from you for a few years (and a little principal) at a higher than market rate. Plus the dues, so it isn't like they are out maintenence. You stop paying, they repo, they don't refund any of your money. They then resell your interest for full price - or if the market is down - sit on it until they can while renting it out when they can.

Its the reason the sub-prime market was so attractive on housing - all these financial companies thought they were going to make money on the downpayment and the interest, then resell an appreciating asset after repo. They simply seemed to completely forget that if everyone did this, the supply of houses would skyrocket, demand would fall and prices would fall - and they'd be holding paper on property they couldn't resell without taking a loss. But Disney doesn't really NEED to resell their property if they reposses it.

Exactly. and pretty much what I meant.

The other pluses for disney, in reposession, is that there is no one to physically "evict" from the property, there is no "collateral damage" to the property from an owner who knows they are about to lose their house or who has been living in "unfriendly" conditions due to lack of funds (ie: no water, power, etc) while trying to pay their mortgage and MINIMAL cost in reposession because of all that.

Not to be heartless...but the reposessed points DO actually end up making Disney, as both the property owner and the mortgage holder, MORE money.

 

[BWV Dreamin]

That .75 point rate cut might help quite a bit. We're starting to approach "crazy' rates, like we did back 3 years ago, or so.

The question is: Who will qualify for those rates, with the new credit restrictions, and will they be of any use to "ma and pa" consumer? Will they stimulate housing prices the way the fed hopes they will...like they did last time?

We'll see.

Well please correct me if I'm wrong, but the housing mortgage rates are based on the 30 yr. bond, and the .75 rate cut is only affecting short term interest rates. So, this rate cut will only really maybe affect those ARM's that are getting ready to adjust. Maybe......

 

[pilferk]

Yes - I remember many many posts in the past 18 months in which Disers said they were taking out home equity loans to buy DVC.

Now that the paper equity has dried up and millions of people are under water with loans higher than the value of their homes, there will most likely be a flood of DVC resales.

The housing market still has a long way to go to hit bottom, as well.

I don't understand why?

I mean, theoretically....you're right. Being underwater on your mortage is the LAST place you want to be.

But unless you plan on selling, or find a need for that cash in lieu of equity for home repairs or other purpose....why does it matter?

The bank is likely not going to pull your loan based on a new appraisal. They're not going to shut down your HELOC in good standing, either. You might not be able to refinance it. You might not be able to extend it, or get a new loan, but your existing loan is only going to be hindered by your ability to pay it on time. Provided you haven't overextended yourself....which you shouldn't do no matter what your home value is....what exactly is the issue?

 

[pilferk]

Well please correct me if I'm wrong, but the housing mortgage rates are based on the 30 yr. bond, and the .75 rate cut is only affecting short term interest rates. So, this rate cut will only really maybe affect those ARM's that are getting ready to adjust. Maybe......

If you look at historical trends, when the short term "bank to bank" fed rate comes down, so do the long term fixed rates. Not by as much, and not usually as quickly, but they come down. Witness when we hit bottom a few years back, the fixed rates were in the high 4's and low 5's. I'm not sure it'll happen again, but there's at least some historical precedent that it will.

It will also effect the ARMS that everyone is clamoring about....that's one of the primary concerns about the credit crunch. That when the round of ARMS sitting on the brink adjust there will be a LOT of homeowners unable to make their payments.

 

[colleen costello]

I am a stay-at-home Mom and so I do all the shopping and bill-paying in our household. Money has definitely gotten tighter in the past two years with gas prices up, grocery prices up, heating and cooling costs up. It just means less money for "fun" things, and I know that most of my friends are grumbling about the very same costs I mentioned here.

We will still go on our DVC trips and still enjoy every last point. What has slowly changed, however, is how carefully I watch the dollars while there. We always drive down, which not only saves us a little over airfare but means we are not at Mickey's mercy when it comes to food. Do I cook on vacation? HECK no -- but we DO go out to places that are much cheaper than a Disney sit-down every night. We go to pizza places, Perkins, Olive Garden. We get groceries for breakfasts and snacks at the nearby Super Walmart. We take our own sodas to the pool and our own pretzels too. DVC allows us to have something very special -- a REASONABLY PRICED Disney vacation! Because of this we are able to go a few times every year.

I will add when we had dinner at Chef Mickey's on New Year's Eve, I was looking at all the people and wondering HOW they could afford rooms at Disney prices during holiday week? We visited the Grand Floridian and it was PACKED! It really is hard to tell there IS a "recession-as-yet-to-be-named" as described here!

 

[crisi]

I will add when we had dinner at Chef Mickey's on New Year's Eve, I was looking at all the people and wondering HOW they could afford rooms at Disney prices during holiday week? We visited the Grand Floridian and it was PACKED! It really is hard to tell there IS a "recession-as-yet-to-be-named" as described here!

There is a LOT of money floating around out there, and probably a LOT of people "downscaling" to WDW rather than spending Christmas in London. Friends of ours are going to Florida after Spring Break. I said "that sounds really nice." She looked at me and sighed "Well, it was supposed to be Spain, but we couldn't swing Spain this year."

And not everyone is sensible. There are people who just work themselves progressively into debt - they'll die or win the lottery in order to fix it.

 

[pilferk]

I am a stay-at-home Mom and so I do all the shopping and bill-paying in our household. Money has definitely gotten tighter in the past two years with gas prices up, grocery prices up, heating and cooling costs up. It just means less money for "fun" things, and I know that most of my friends are grumbling about the very same costs I mentioned here.

I agree, 100%. The increase in costs for "necessities" is hitting everyone in the pocket book.

So, I figure, I'm saving myself some cash when I go to WDW via DVC (keep in mind, my tongue is firmly planted in my cheek on this!):

Gas for 1 week for work commute: $80
Heat for 1 week for house: $50
Groceries for household: $200
Electricity cost for 1 week for household: $30
Water use for 1 week: $25

Money saved by going to WDW: $385!

WHOO HOO!

 

[Disney_Daddy]

We need to remember that not everyone is affected by the recent credit/housing crunch. Many people have an affordable mortgage on their home and did not over extend themselves.

As well, there are several sectors that are relatively safe from the current housing crisis such as pharmaceuticals, healthcare, law, education, technology, and oil. The people within these industries may still have the capacity for a luxury purchase like DVC and perhaps that will sustain DVD until the market works itself out.

 

[BWV Dreamin]

I agree, 100%. The increase in costs for "necessities" is hitting everyone in the pocket book.

So, I figure, I'm saving myself some cash when I go to WDW via DVC (keep in mind, my tongue is firmly planted in my cheek on this!):

Gas for 1 week for work commute: $80
Heat for 1 week for house: $50
Groceries for household: $200
Electricity cost for 1 week for household: $30
Water use for 1 week: $25

Money saved by going to WDW: $385!

WHOO HOO!

Your gas # is a little low for traveling from Conneticut to your business in Wash, DC isn't it?

 

[pilferk]

Your gas # is a little low for traveling from Conneticut to your business in Wash, DC isn't it?

LOL.

I do wish it was low, though.

I commute 60 miles, ONE WAY, to work.

The thing is, the property value difference between Southern CT and NW CT makes it worthwhile....or it did when gas was under $3 a gallon. I may have to rethink that, now, though I doubt we'll be putting our house on the market any time soon. The mortgage is comfortable, it's big enough (though not as big as we'd like with the 3rd little one running around), and we're content to ride out this little hiccup for a year or two.