When Interest Rates Go Up Might DVC Prices Fall a Bit?

[Drewski77]

In my work in the financial services industry the prospect of rising interest rates plays a big part in daily conversations and planning. It got me thinking about the implications for DVC prices, especially as my wife and I are looking to buy our first contract. We are not waiting, nor am I necessarily expecting prices to fall, but I do think factors that are associated with rising rates could lead to a softening of the market.

Certainly it is abnormal to see a timeshare contract go up in value, especially when we know what the eventual value of all contracts will be...which is zero. I think there have been some extraordinary factors that have made DVC contracts rise in value, but many of those factors could be changing soon.

Below are my thoughts, let me know what you think.

Last few Years Perfect Storm For DVC Prices Going Up:

• Economy strengthening
• Record levels in the stock market
• Historically low interest rates which increased the pool of buyers who can finance, and buyers who used "idle" cash that was earning virtually zero interest in the bank
• A drop of over 50% in oil prices, freeing up more money to be spent on vacations which has driven up the demand for all things Disney

When the Fed Starts to Raise Rates:

• Borrowing costs on credit cards, Home Equity Lines, and DVC Financing will rise which will lesson the pool of available buyers
• With borrowing costs on all variable credit going up some will feel the pinch and have less to vacation while looking to potentially sell their DVC contract at a price above what they paid = more sellers in the market
• Deposit interest rates will rise, making the "idle" cash which was so attractive to use in purchasing DVC contracts less attractive to use which creates less buyers, along with more sellers who can put their proceeds to use in higher earning accounts/investments

Will this really lead to lower prices for DVC contracts this Fall/Winter?? Not sure, but as someone who is a cash buyer now and might still be then, I sure hope so!

 

[Minniesgal]

Yes probably but other things to take into account. low oil price for one.

Not all DVC purchasers are in the USA. Huge number of WDW fans and DVC owners in the UK where interest rates are at historic lows with no propect of an increase at least this year. I know many DVC owners in France.

Many DVC purchasers pay cash. Many many believe a luxury purchase shouldn't be financed.

Prices are rising. Disney isn't selling a product that a lot of people want (no villas at WDW). Pushes 1 and 2 bedroom purchasers to the resale market. Nothing else significant in the 1 and 2 bedroom size under construction at WDW.

Demand may well be hit but I think demand is high anyway I'm not sure interest rates are enough to impact prices significantly downwards.

Baring a major recession I think the general trend is up.

 

[supersnoop]

Prices drop when supply outpaces demand. I don't think rising interest rates or gas prices will cause more people to sell, but it might bring in fewer buyers. Since owners won't have a necessity to sell, I imagine they'll hold on through any dips. Prices may dip and balance out, don't see prices dropping until the next recession.

 

[crisi]

Prices drop when supply outpaces demand. I don't think rising interest rates or gas prices will cause more people to sell, but it might bring in fewer buyers. Since owners won't have a necessity to sell, I imagine they'll hold on through any dips. Prices may dip and balance out, don't see prices dropping until the next recession.

Plus interest rates affect home buying because the vast majority of people take out a mortgage.

A lot of people pay cash for DVC - particularly resales. And a lot of people are just cash based. For those people interest rates going up means they get more money.

 

[com_op_2000]

IMHO, Prices will drop on the 2042 end of contract resorts sometime @2035. That is the point at which the higher prices can not be recovered if purchased to make it worth while. Those who have done their due diligence will know that at that point with 7 years left on the contract they may or may not recover their initial investment. That is unless there is another recession before that point that causes prices to drop.

 

[Drewski77]

Prices drop when supply outpaces demand. I don't think rising interest rates or gas prices will cause more people to sell, but it might bring in fewer buyers. Since owners won't have a necessity to sell, I imagine they'll hold on through any dips. Prices may dip and balance out, don't see prices dropping until the next recession.

I tend to agree with you and the other replies.

I also wasn't thinking about the international buyers.

Maybe a bit more supply and stable prices, but meaningful drop for now, probably not.

 

[hopeful4fl]

IMHO, Prices will drop on the 2042 end of contract resorts sometime @2035. That is the point at which the higher prices can not be recovered if purchased to make it worth while. Those who have done their due diligence will know that at that point with 7 years left on the contract they may or may not recover their initial investment. That is unless there is another recession before that point that causes prices to drop.

Disney is very good at making money and have someone else pay for the upkeep of their "leased" assets. I fully expect Disney to have a "rebuy" option for all properties expiring in 2042. This would essentially mean that the owners (people like us) would have the opportunity to rebuy at a (relatively) reduced cost, "or" recoup some of the money in resale, which I expect would be more than what we would get if the option was truly expiring in 2042.
DVC is kinda unique due to the financial clout and reputation of Disney. Their outreach is Global and their brand well known, so I see the prices tied more to the Global economy and not just ours. Global economy contracts and expands in the short term but in the long term goes up. I do not see DVC prices going down significantly any time soon.

 

[com_op_2000]

Disney is very good at making money and have someone else pay for the upkeep of their "leased" assets. I fully expect Disney to have a "rebuy" option for all properties expiring in 2042. This would essentially mean that the owners (people like us) would have the opportunity to rebuy at a (relatively) reduced cost, "or" recoup some of the money in resale, which I expect would be more than what we would get if the option was truly expiring in 2042.
DVC is kinda unique due to the financial clout and reputation of Disney. Their outreach is Global and their brand well known, so I see the prices tied more to the Global economy and not just ours. Global economy contracts and expands in the short term but in the long term goes up. I do not see DVC prices going down significantly any time soon.

I have no intentions on "rebuying" my DVC for any amount of time. I will be 83 when that time rolls around and will be lucky to still be walking upright. I turned down the extension to 2057 and will do so for any further extension. Based on a previous thread earlier in the year, I am not alone in my way of thinking. When DVC offered the extension to OKW owners they did not look into the owner's ages.

 

[disBOBney]

I doubt much if any price decrease happening on the direct side, which means more than likely an increase of prices on the resale side. If it does get too difficult to finance a retail contract more people could be driven to the resale market thus driving up resale prices (in general, I believe that resales prices are currently much to low, there is no reason for resale prices to be more than 25% off Disney's current pricing, of the same property). However, since the financing of DVC is already far above where finance pricing should be, it could work out that Disney and other financing companies could lag behind any general interest increases to minimize any market fright.

 

[dsnydaddy]

You might see a softening in prices if interest rises too much. But I really think that the high prices that we are seeing are factors of improvements (debatable) being made by Disney and some of those will not go away anytime soon (case in point the skyrocketing BLT prices are a factor with dissatisfaction over GFV and PV)

 

[JimMIA]

I suspect that the overall economy has much more effect on timeshare sales than interest rates. If we have another recession, or if the stock market comes unglued as some suggest, I think those events would be much more likely to cause a drop in resale prices.

 

[Drewski77]

I suspect that the overall economy has much more effect on timeshare sales than interest rates. If we have another recession, or if the stock market comes unglued as some suggest, I think those events would be much more likely to cause a drop in resale prices.

I think your point is very valid. A potential outcome of rising rates could be a drop in the stock market, and if rates go up too fast, a dip in the economy. A potential domino effect.

As others have said, and I agree, is the demand to stay at Disney properties by vacationers who pay cash should keep DVC prices much more stable than typical timeshares which has been the case for many years already.

 

[mort1331]

As a foreign owner, I would be surprised if the market for us is more than 30% of all sales. So I think the US economy will play a higher roll on the prices then the foreign markets. Where I(maybe we) factor in is when our dollar is that much stronger or equal to the US. I would love to buy more points, but am waiting for a better exchange. I could sell my points now for more then I purchased and make even more on the exchange, but we love going and will not be stopping so it is not an investment opportunity for me.

 

[dizfan]

I agree with JimMIA, much more related to the economy.

Interest rates are rising because inflation is rising. I read, the percent of people quiting for other jobs is at levels not seen since the 90s. This is forcing employers to raise wages.

Judging by the housing sales in my neighborhood the last 2 months, it seems many people are rushing to lock in a long term mortgage at rates we may never see again (or not in my lifetime).

Additional factor to add to the equation is Disney converting deluxe rooms to DVC. PVB is about 360 fewer deluxe hotel rooms. WL is rumored to be converting a bunch of hotel rooms to DVC. Increases supply of DVC. However, it also reduces hotel supply at a time when more Americans are traveling than we have seen since the 90s. Higher hotel prices means DVC seems like a better value, particularly at resale prices.

I am not suggesting prices go one way or another. Too many variables for me to comprehend.