Why are prices going up?

[Nabas]

Isn't this the definition of a real estate bubble? Notice that I didn't say that the prices were artificially high, as I agree with you that they are probably correct based on current market conditions. That being said, I don't think that the current market conditions are sustainable (I could be wrong) which is what led me to classify the current resale market as being a bubble. Perhaps it's the terminology we disagree on, because from reading your post I can see that we agree that BWV for $85 a point is not a strong likelihood in the future.

It certainly seems like a bubble. During the real estate bubble 5 years ago, BWV was selling for $77/point, BCV for $87/point. Now these memberships have lost 1/7th of their years yet asking prices are above where they were in 2008. And, unlike 5 years ago, today's resale market is being saturated with BLT, SSR, and AKV. (BTW, those 3 alone nearly doubled the number of DVC rooms.)

And instead of building big, DVD builds the tiny VGF and now word's out that the DVC at the Poly is being scaled back. Seems that Disney is expecting lower DVC demand.

 

[Apps]

The only Iron Man stuff I saw was the monorail and a suit at Planet Hollywood. Disney has been resting on their laurels for quite some time. When was the last time Epcot got a new attraction, not just an "upgrade" from a previous attraction? How long has the yeti been broken for?
If Disney wants DVC to continue in the future, they need to up their game at the parks.

You are right...i meant at Disneyland. They had the Ironman stuff at Innoventions there. Pretty cool. Disneyland also got the fantastic Carsland which really helped book the hotels there (not to mention GCV bookings).

Lets hope WDW gets more upgrades making it, and DVC, more valuable in the future.

 

[sndral]

... Add to that the fact that BLT had 50 years of use on it, it made sense to us to pay the extra for BLT. We bought in June of 2009 for $92 pp. In one year the price went up 20%.

As for the OPs original question, why shouldn't prices go up? What prices have not gone up over the past few years? Inflation has been fairly steady over the last several years so it would only make sense that the price of DVC would have gone up as well. Are you paying the same amount for food as you did 6 years ago? Also, how much has the price of a hotel stay gone up in the last 6 years?

Inflation in general has been lower than the 3.35% per annum average lately. June's annual rate was 1.75%, Jan. 2013 was 1.59%, Jan. 2012 was 2.93%, 2011 was 1.65%, 2010 was 2.63%, and 2009 was .03%.
So I don't think we can blame inflation for the recent price bump in resale prices - I attribute it to the big bump in direct sales prices.
I do wonder about future DVC projects, it took a long time to sell SSR and AKV I suspect because neither is attached to a park. Thus people value easy access to a park and are willing to pay more for it. Perhaps there is available land out the back of MK or DHS where they could build another DVC. Or maybe they could build another BLT tower - who knows, as long as DVC is such a cash cow they'll keep building IMO.

 

[DougEMG]

In my view the resale market usually is fairly stable without much change. The reason I think that is that the majority of the resale contracts are listed at the three major brokers. All of them suggest to sellers what they should be listing at. This they base on recent sales. So they are agents for price stability.

When large price changes happen it is because of other factors, such as the economy collapsing and people being forced to sell, Disney raising direct prices, lack of iventory for properties allowing those who want to sell to raise their price, etc.

Taking BWV as the example that is being discusses, a new price level of in the $80s has been established. Buyers have demonstrated that they will buy at that level and all the brokers are probably advising sellers to list in that range. While you might see an occasional BWV priced lower, there just are not enough sellers in a hurry to undercut the $80s price point. BWV contracts are going to continue to be listed in the 80s. Anyone who bought in the $50s should feel very lucky, cause those prices are not coming back anytime soon, unless of course you expect the US economy to collapse sometime soon and I don't.

So high prices are here to stay for now.

 

[Deb & Bill]

I disagree. As long as Disney upgrades their parks and maintains their brand, it will keep DVC desirability high. ...

...If Disney wants DVC to continue in the future, they need to up their game at the parks.

Yeah, like Avatarland.

 

[DrewJB]

I wouldn't call this a bubble. In the case of DVC, even at current prices - for the right buyer it makes complete financial sense to buy in. It might not be as good of a deal as it once was - but that has more to do with Disney realizing how much value these resorts actually hold and making the proper adjustments (just as they have through the years with their hotels and park tickets). When they adjusted the direct pricing upwards - the resale prices also climbed. That makes sense. The prices would drop in a decline in the economy because less people would be inclined to vacation - but that isn't a DVC bubble bursting - a decline in the economy would have a negative effect on the value of almost everything. If there is a bubble it is a world economy bubble - not a DVC bubble.

That said, because these properties have an expiration date there will come a time when the value starts dropping substantially. We will see that on all of the 2042 properties first. I'm guessing that after around 2020 you will start seeing the 2042 expiration date play a bit of a factor in the value of those properties. It will be playing a large factor by 2030. Currently all expiration dates are too far out to play a substantial role in the value. Im sure there will be a lot to learn from the 2042 contracts for all of the others. There are so many things that could happen though (Disney extending contracts, etc.) that it is incredibly hard to predict exactly what will happen.

 

[DVCcurious]

Couldn't you figure out the "value" of a DVC contract based on the number of years until break even?

This takes out the line of questioning of: "Five years ago it had 40 years left and now it only has 35 years left but the price is higher" because the end of the contract doesn't matter, just how many years until you break even.

Maybe you could just look at how many years you could pay to rent the points through a broker before you would have been better off buying instead.

(the following example has made up values to try to make a point, so don't take the made up values to literally).

Supposing 6 years ago the rental price was $10 per point and the dues were $5 per point you'd net $5 by owning vs renting. And if it cost you $60 per point to buy DVC it would take you 12 years to break even. But now if it costs $14 per point to rent and $6 per point for dues you'd net $8 by owning. And if costs were now $96 per point you'd break even in the same 12 years. So even though the price per point to buy into DVC increased 60% (from $60 per point to $96 per point) you are still in the exact same financial position based on the fact that point rentals increased 40% (10 to 14) and dues only increased 20% (5 to 6).

So the "value" to the purchaser is the same at $60 per point in 2007 as it is at $96 per point in 2013.

Does this work the way I think it does?

 

[Apps]

Yeah, like Avatarland.

How about Star Wars land How about getting rid of Autopia and putting in something good

Imagine putting in a whole new theme park at WDW....why not, its not like they are constrained by land

 

[twinsouvenirs]

I wonder if the smaller new resorts would have the following advantages over a large sale:
1) higher sales prices with little or no incentives because of limited supply.
2) more easily integrated with the parent resort at the end of the contract instead of a sprawling resort that requires overhaul/repurposing.
3) smaller populations of more specific-property-centric buyers, allowing for less of a shock when other properties are offlined
4) marketing direct to the upper income brackets that routinely stay at GFV or Poly

It will be interesting to see if new members that have bought in expressly to own a piece of the glam GFV or eventually Poly (if it happens) and are used to dropping mad money and getting fabulous service push the standards up for DVC.

 

[DougEMG]

Couldn't you figure out the "value" of a DVC contract based on the number of years until break even?

This takes out the line of questioning of: "Five years ago it had 40 years left and now it only has 35 years left but the price is higher" because the end of the contract doesn't matter, just how many years until you break even.

Maybe you could just look at how many years you could pay to rent the points through a broker before you would have been better off buying instead.

(the following example has made up values to try to make a point, so don't take the made up values to literally).

Supposing 6 years ago the rental price was $10 per point and the dues were $5 per point you'd net $5 by owning vs renting. And if it cost you $60 per point to buy DVC it would take you 12 years to break even. But now if it costs $14 per point to rent and $6 per point for dues you'd net $8 by owning. And if costs were now $96 per point you'd break even in the same 12 years. So even though the price per point to buy into DVC increased 60% (from $60 per point to $96 per point) you are still in the exact same financial position based on the fact that point rentals increased 40% (10 to 14) and dues only increased 20% (5 to 6).

So the "value" to the purchaser is the same at $60 per point in 2007 as it is at $96 per point in 2013.

Does this work the way I think it does?

That is pretty much how I look at it, where is the break even point.

 

[ELMC]

I wouldn't call this a bubble. In the case of DVC, even at current prices - for the right buyer it makes complete financial sense to buy in. It might not be as good of a deal as it once was - but that has more to do with Disney realizing how much value these resorts actually hold and making the proper adjustments (just as they have through the years with their hotels and park tickets). When they adjusted the direct pricing upwards - the resale prices also climbed. That makes sense. The prices would drop in a decline in the economy because less people would be inclined to vacation - but that isn't a DVC bubble bursting - a decline in the economy would have a negative effect on the value of almost everything. If there is a bubble it is a world economy bubble - not a DVC bubble.

That said, because these properties have an expiration date there will come a time when the value starts dropping substantially. We will see that on all of the 2042 properties first. I'm guessing that after around 2020 you will start seeing the 2042 expiration date play a bit of a factor in the value of those properties. It will be playing a large factor by 2030. Currently all expiration dates are too far out to play a substantial role in the value. Im sure there will be a lot to learn from the 2042 contracts for all of the others. There are so many things that could happen though (Disney extending contracts, etc.) that it is incredibly hard to predict exactly what will happen.

I think to say it makes "complete" sense might be overstating things a bit. Certainly, there are all kinds of analyses out there and many of them support your theory. However, if you look at the least costly alternatives to DVC ownership (specifically becoming a permanent renter or owning a small contract and paying for point transfers), you will find that at these prices the economic value is not there in many situations. In that case, one needs to look for non financial reasons for purchase, of which there are many. However, market forces aside, I do not believe that these resale prices are sustainable over the next 12-24 months. Feel free to quote me then when I'm proven horribly wrong.

 

[BestDadEver]

It's inflation . An with Disney it happens really fast .

 

[SFlaDisneyfans]

It's inflation . An with Disney it happens really fast .

I respectfully disagree. Quite simply prices are increasing because demand drives supply. Resale prices have shifted upwards because demand has increased. Once we reach a market clearing price the prices will stabilize.

The real question isn't why are prices increasing buy why is demand in the resale market increasing. I would guess a combination of increased disposable income and greater education of potential buyers about the existence of the resale market. I would put more weight on the increased education than the increased disposable income. Prices will stabilize and perhaps fall in concert with the fluctuations of demand for the contracts.

 

[chalee94]

I wouldn't call this a bubble.

pretty sure that historically, when people have actually been in the middle of a bubble, virtually none of them would have called it a bubble. ("internet companies are just different, after all, than brick and mortar. it's a new paradigm")

if buyers are willing to pay the inflated prices, disney has an obligation to their shareholders to take that money from those buyers. but that doesn't mean that they aren't overdoing it...but i'll concede that until they build another set of parks in the U.S., there is a pretty unique demand proposition for the wdw resorts.

at some point, we both agree that prices will be dropping due to expiration dates. so long as new buyers (especially of 2042 resorts) understand that prices are unlikely to keep going up, then it's not a big deal to me.

 

[DougEMG]

However, market forces aside, I do not believe that these resale prices are sustainable over the next 12-24 months. Feel free to quote me then when I'm proven horribly wrong.

I'll take the opposite side of this and say I think that resale prices will stay firm for the next 12-24 months.

Full Disclosure - As prices started going up in the summer of 2012, I thought that prices in early 2013, when MF came due, would come down a little and was completely wrong, so my track record isn't very good.

 

[michelleiada]

I agree with the supply and demand theory. Also the fact that buying direct is $150 per point, people are looking for a bargain. There isn't a lot of inventory so sellers can ask a bit more and buyers are willing to pay a little more to get what they want.

 

[NoleFan]

Also, the ROFR activity dried up some of the supply & drove up prices as well. The price increase & incentives offered for older resorts in March led to big wait lists for buying direct & drove up resale prices.

 

[Swissdog2010]

Why are prices going up?

How about John Carter and The Lone Ranger, Mars Wants Moms to name a few reasons.

 

[chalee94]

Why are prices going up?

How about John Carter and The Lone Ranger, Mars Wants Moms to name a few reasons.

Nah. Unrelated.

 

[iluvthsgam]

Why are prices going up?

How about John Carter and The Lone Ranger, Mars Wants Moms to name a few reasons.

The success or failure of Disney movies have nothing to do with resale prices. Not even close.

The success or failure of Disney movies doesn't even have anything to do with Disney direct pricing.