Why do prices rise as years remaining on a contract decrease?

[dfinn2]

I know there is a supplu/demand concept here, but barring that, if 10 years goes by on a 40 yr contract shouldn't the price be going down by approximately 25%? I have been an owner at WLV since 2000, but the price per point is roughly the same as it was (via resale) when I first purchased and a lot more if directly purchased. is there some logic here that I am missing here?

 

[drusba]

There are about 32 years left on the shortest contracts (January 2042 for BWV, BCV, VWL, HH, VB, and OKW contracts without the extension). At some point, yes, the price of those contracts should reflect their decreasing utility (and for VB and HH that is probably definitely already true). But it all boils down to when purchasers decide that they will not buy at the going price because of that decreasing value in use.

For all we know there may already be a decreased value built into existing prices for that factor in the market despite that prices remain fairly high particularly for resorts that are close to a park, BWV, BCV, and VWL. The price may be remaining fairly high simply because other factors are outweighing that concern including the desirability of having a home resort close to a park. It helps that the other close to a park resort, BLT, has a price per point that is signficantly higher than what you can pay for any of those three resorts in the resale market and thus buyers who want to be close to a park are comparing BLT, with its high per point price and high point cost per room per night, to what they consider to be the other options, BCV, BWV and VWL. In other words, in comparison, getting 32 years for a resort close to a park at a price much less than BLT and with a much less per night point cost for a room per night is considered a better deal by many than getting the extra 18 years at BLT.

 

[dfinn2]

Thanks for your thoughtful response. Your theory makes perfect sense and at the end of the day its simply supply/demand like I suggested.

I am surprised by the increases announced this month by DVC for BCV and WLV though, but like you said if people are willing to pay that then it makes sense. Nothing prevents them from lowering their price down the road if they care to.

 

[jana]

It all has to do with the rental rates Disney is charging. If the rental rates increase ( as they have) the "value" of any piece of "real estate" increases with it.

For example if the rental rates ( 10 years ago) were $200 a night for 10 nights a 50 year "program" has a simple "value" ( ignoring inflation ) of $100,000 ( 200X10X50)

If the rental rate now has increased to $300 a night the "simple value" of the same ownership with only 40 years remaining has increased to $120,000 ( 300 X 10 X40).

Lets say that 10 night stay in 2040 to rent is $50,000 per year. Compare to dues cost is $10,000 then $30,000 to buy a membership ( total cost $50,000 for 2 years vacations , still looks a good buy when compared to rentals cost $100,000)

Now I know I've used VERY simple math, but most people, financially, don't understand or try to understand factoring in inflation etc into such calculations.

One of the "measuring sticks" applied to investment ( and DVC really shouldn't be viewed as an investment) property is : The true value of a piece of "property" is a multiplier of the rental rates of similar pieces of property. I.E a shopping plaza that rents out units at $20 a sq foot per year has a higher purchase price than one that rents out $15 a sq foot. A condo that rents at $1000 a month ( generally) will have a higher price ( probably about 25% higher) to purchase outright than an identical unit that is in an area that only commands $800 a month.

IMHO the point cost per night of different resorts is less of a factor than inventory supply and demand for those resorts. VWL and BCV have MUCH less resales than OKW + DSSR because there is MUCH less inventory at those. Coupled with home resort advantage ( with less supply at BW area) makes resales at higher costs. Less supply and more demand.

 

[Sandisw]

I also think that the resale prices stay up because of what Disney is charging for their initial contracts and this causes some buyers to seek the resale market to get in to DVC.

I know this is based on supply and demand, but for those that want in to DVC and can't (or don't want to) invest the over $15,000 it costs to buy in direct at Disney, the resale market offers them a choice.

And, someone who wants to sell, knows that someone out there will buy if they are saving thousands over Disney.

 

[TisBit]

Plus normal inflation will offset those decreases as well. All the comments above plus inflation can hold the prices steady at what they were, but if you were to compare what the price would cost if those resorts were built and sold today, they would most likely be signifcantly more expensive. You could look at OKW and SSR as an example, approx same distance from resorts, same general design and SSR sold for a signifcatly higher per point than OKW.

 

[Crystal_27]

I also think that Disney can get away with charging higher prices (to some extent) because Disney banks on people who are wishing to add on points at these resorts to just go through them for the ease of adding on to the same use year, having no closing costs, having immediate access to the points, and being able to easily finance through them. Resale can be time consuming and messy (given Disney's ROFR) and some people would rather just pay the extra money rather than deal with resale.

 

[SuzanneSLO]

In addition, because of the time value of money, the value of something you can't use until more than 20 years from now has a present value almost equal to 0. I would suspect that we won't see much decrease in resale values attributed to the remaining number of years on the RTU until there is 20 years or less remaining. -- Suzanne