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Will DVC values drop?

Monday, July 28, 2008

 Gas prices are high, airlines are cutting flights, and these days you can’t always check even a single suitcase at the airport without paying a fee. “Staycations” are apparently gaining in popularity, as evidenced not only by the coinage of the phrase, but also by local economic indicators. Everything points to vacation tourism going to hell in a handbasket… which doesn’t seem to bode well for timeshare values in Orlando. On the other hand, that certainly seems to be good news for prospective buyers, who might snap up some great bargains as cash-strapped owners sell, and as financial woes prevent others from buying in.

But what, if anything, will this mean for the value of Disney Vacation Club points? So far, the Orlando tourist economy seems to be holding up better than much of the nation, but some predict that won’t last. And of course, if the nation’s economy continues to falter, plenty of people may need to put their DVC points on the resale market, as airfares, gas prices, and job losses make vacations financially untenable (remember folks, those official unemployment statistics only count the people currently collecting benefits, which don’t include the long-term unemployed or the significantly under-employed).

When you re-sell DVC points, Disney has a “right of first refusal,” which allows them to short-circuit a potential sale and buy the points back themselves, thus preventing large amounts of super-cheap points from hitting the resale market. This doesn’t mean there aren’t deals out there, or that those deals might not get pretty darn good…but it does mean that Disney’s got substantial ability to control the general price levels of the re-sale market. And if they wind up buying back a large number of points? Well, I’m sure that wouldn’t look great on their books, but it might not exactly kill them either. Last summer, for example, when the Value Resorts were oversold in late August, they bumped a whole bunch of Guests en masse to Old Key West or Saratoga Springs, as a completely free upgrade. I was one of the lucky recipients of that one…and it was Free Dining season as well, so I felt like I’d won the lottery getting an  SSR room at Pop Century rates (even the rack rate, mind you), with the Dining plan included at no charge!

That same right of first refusal may well be in place for many other timeshare resales, but the market for those locations seems to be far less brand-specific, which in turn should shore up DVC prices even if the traditional timeshares drop. In addition, traditional timeshares may be more strongly affected by market shares as a whole, as they tend to be owned by larger tourism or real estate ventures. These ventures may be more affected if property values fall off in other parts of the country, whereas DVC is highly concentrated in Lake Buena Vista.

At what point would Disney feel they’d bought back too many points, and go ahead and let the price drop substantially? It’s hard to imagine where that point would be. For one thing, the value of resale points on the open market could conceivably affect the prices they’re able to charge for “new” points. But also, one would imagine Disney wants to keep its current DVC members happy, and given how irked some DVC members were that some of us lucked into that free upgrade to Saratoga Springs, one can imagine they might be a tad cranky to see bargain-basement, fire-sale prices on the resale market, both for the potential effect on their own ability to resell, and for that sheer envy of seeing somebody get a better deal. I do know that some messages boards I frequent were flooded last summer with comments from DVC members, irritable to learn that we Value Resorts types would be staying in their home resorts without ponying up the full price. (In all fairness, there were also many who couldn’t give a hoot.)

So whaddya think? Will DVC re-sale prices be sharply affected if the US economy continues to falter? Drop me anote, post to the forums…I’m curious to hear more opinions.

(A big tip o’ the hat to Grumpwurst, for the tweets that inspired this article.)