Buyer's Market Coming Soon?

[WalnutBaron]

If you're anticipating being in the market for a resale timeshare unit in 2019, your timing may be pretty good to excellent. The NASDAQ is now officially in bear market territory, and the S&P 500 and the Dow Industrial Average aren't far behind.

When the timeshare market crashed back in 2008, one of the harbingers was a soft outlook in 2007 from Carnival Cruise Lines. Carnival owns not just its namesake, but also Princess Cruise Lines, Costa Cruises, Cunard Line, and Holland-America Cruise Lines, among others. Today, Carnival released its outlook for 2019, and it wasn't pretty. I tried to find an electronic version of the 2007 report, but could not find one. Regardless, there are eerie similarities.

If it is, in fact, the canary in the coal mine, 2019 could be a chance to go bargain-hunting for some very nice timeshare properties at discount prices.

 

[klpca]

I hope so. I've been waiting to pick up one or two.

Note: Do not tell Mr. Klpca

 

[vacationtime1]

If you're anticipating being in the market for a resale timeshare unit in 2019, your timing may be pretty good to excellent. The NASDAQ is now officially in bear market territory, and the S&P 500 and the Dow Industrial Average aren't far behind.

When the timeshare market crashed back in 2008, one of the harbingers was a soft outlook in 2007 from Carnival Cruise Lines. Carnival owns not just its namesake, but also Princess Cruise Lines, Costa Cruises, Cunard Line, and Holland-America Cruise Lines, among others. Today, Carnival released its outlook for 2019, and it wasn't pretty. I tried to find an electronic version of the 2007 report, but could not find one. Regardless, there are eerie similarities.

If it is, in fact, the canary in the coal mine, 2019 could be a chance to go bargain-hunting for some very nice timeshare properties at discount prices.

I hope you're wrong.

I think you're right.

 

[breezez]

I wonder how it will be different for the timeshare companies again, if we go into a recession. Many have all spun off from their hotel brands... My thought it makes them more vulnerable if sales drop and defaults increase.

 

[SmithOp]

Not interested in buying more. Maintenance fees won’t be going down, so you are only talking buy in costs.


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[WalnutBaron]

I wonder how it will be different for the timeshare companies again, if we go into a recession. Many have all spun off from their hotel brands... My thought it makes them more vulnerable if sales drop and defaults increase.

It's all about supply and demand. If defaults increase or owners who are tight on cash suddenly feel they need to unload their timeshares to avoid the burden of annual maintenance fees, the market will suddenly be flooded with lots of offers to sell and prices will reflect that. Understand that we're not there yet--and we may not see the downturn until the 4th quarter of next year when MF bills are sent out. But the U.S. economy appears to be slowing down--and it has been preceded by slowdowns in other major economies in Europe and Asia already. Buying opportunities may come available if a downturn occurs.

 

[WalnutBaron]

Not interested in buying more. Maintenance fees won’t be going down, so you are only talking buy in costs.

True. In fact, if defaults increase, maintenance fees may actually increase faster to place the burden of unpaid fees on those of us who pay.

 

[bnoble]

I'm thinking the same thing.

 

[pedro47]

I would love to pick-up one more week cheap; but higher MF costs & now resort fees costs.
The mind & wallet is saying no way.

 

[AJCts411]

One one hand a "buyers" market would be welcome chance to pick up some deals. On the other not sure if it will matter in the hot/desirable locations, unless there are some fire sales due to financial hardships. Wondering though, if the economy tanks, costs are presumably reduced, then wouldn't maintenance fees reflect that?

 

[CalGalTraveler]

I am of a similar mindset to buy another. But right now don't need another so the bar is very high.

If we find a rare "hen's tooth" unit at a bargain price.

What systems would you buy?

I have an eye on specific Hyatt or Vistana units but high MF. Marriott acquisition makes me think twice.

HGVC yes. We would upgrade a current unit we own in the HGVC system for a rare bigger, more points unit for same MF (Moving from plus to premier akin with Gold to Platinum unit) However, would have to use or rent the existing unit until the economy recovers and we could sell.

 

[SmithOp]

One one hand a "buyers" market would be welcome chance to pick up some deals. On the other not sure if it will matter in the hot/desirable locations, unless there are some fire sales due to financial hardships. Wondering though, if the economy tanks, costs are presumably reduced, then wouldn't maintenance fees reflect that?

Interesting question on what happens during a recession! Businesses have to adjust by reducing staff, selling off underperforming stores or product lines. Look at the recent GM adjustment to stop making sedans, people aren’t buying them.

Timeshares are a little different since owners have to pay maint fees to fund continuing operations. Cash revenue may go down from developer owned units and on site revenue generators, like restaurants and gift shops, as people scale back vacations. Developers will scale back on expansion of units and sales operations, but that won’t affect owners.




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[WalnutBaron]

One one hand a "buyers" market would be welcome chance to pick up some deals. On the other not sure if it will matter in the hot/desirable locations, unless there are some fire sales due to financial hardships. Wondering though, if the economy tanks, costs are presumably reduced, then wouldn't maintenance fees reflect that?

Based on the experience we went through during the Financial Crisis of 2008-2010, the following things occurred:

• Defaults were prevalent across all timeshare property classes, from the small independents to the largest and most prestigious names, including Marriott, Starwood/Vistana, Hilton, and Hyatt.
• Many owners simply walked away from their contracts and refused to pay their maintenance fees.
• Other owners--seeking to get out from under their maintenance fee obligations--offered to sell their units at what became fire-sale prices when supply began to out-strip demand.
• When the economy tanks, costs may or may not go down. What DOES go down is service levels and staffing.
• As mentioned above, maintenance fees may actually increase faster as default rates rise. Why? Because the costs to maintain these properties does not subside in a recession. Either maintenance projects are deferred, thereby reducing the quality of the resort, or maintenance fees for those who continue to pay will rise in order to maintain maintenance budgets.

 

[Sapper]

We just bought a Highlands Inn unit (begenning of Nov, but started ROFR last week). Because of this, my thinking is along the same lines as CalGal, it would have to be a rare unit at basically give-away price. Ie, "Hyatt Aspen week 7 free to good home" - OK! Haha. Not likely.

I would imagine the management companies are already thinking about reducing ROFR activity because of how things are starting to look.

A couple of things that give me hope that this down turn we are beginning is short lived is how tight the labor market is. Low unemployment numbers. Also, we have not (yet) had anything resembling the banking collapse of 2008. This looks mostly like a correction compounded by political missteps (tarriffs, lack of clear direction for international agreements) and slowing of a couple of major economies (China for all of 2018).

Could it get ugly? Sure... But I think (and hope) at this point it will not be as deep or as drawn out as 2008.

 

[TravelTime]

We just bought a Highlands Inn unit (begenning of Nov, but started ROFR last week). Because of this, my thinking is along the same lines as CalGal, it would have to be a rare unit at basically give-away price. Ie, "Hyatt Aspen week 7 free to good home" - OK! Haha. Not likely.

I would imagine the management companies are already thinking about reducing ROFR activity because of how things are starting to look.

A couple of things that give me hope that this down turn we are beginning is short lived is how tight the labor market is. Low unemployment numbers. Also, we have not (yet) had anything resembling the banking collapse of 2008. This looks mostly like a correction compounded by political missteps (tarriffs, lack of clear direction for international agreements) and slowing of a couple of major economies (China for all of 2018).

Could it get ugly? Sure... But I think (and hope) at this point it will not be as deep or as drawn out as 2008.

I agree. It feels like a correction, which may cause a small recession but nothing like past ones. If it were really that bad, the Fed would not be raising interest rates. The Fed is raising interest rates to slow things down. I think the reasons you gave for the correction make sense. Besides the increases in interest rates, another factor influencing the housing market in high tax states (California, NY and similar states) and in locations where housing is expensive and property taxes are high (such as the upper middle end / luxury real estate markets in Miami and Austin) include the change in tax laws.

 

[Railman83]

We just bought a Highlands Inn unit (begenning of Nov, but started ROFR last week). Because of this, my thinking is along the same lines as CalGal, it would have to be a rare unit at basically give-away price. Ie, "Hyatt Aspen week 7 free to good home" - OK! Haha. Not likely.

I would imagine the management companies are already thinking about reducing ROFR activity because of how things are starting to look.

A couple of things that give me hope that this down turn we are beginning is short lived is how tight the labor market is. Low unemployment numbers. Also, we have not (yet) had anything resembling the banking collapse of 2008. This looks mostly like a correction compounded by political missteps (tarriffs, lack of clear direction for international agreements) and slowing of a couple of major economies (China for all of 2018).

Could it get ugly? Sure... But I think (and hope) at this point it will not be as deep or as drawn out as 2008.

Banks are better capitalized, but corporate debt is off the chart; much, much higher than 2008. Unemployment will not stay low when over indebted companies go in under.

The level of total debt (government, corporate, private) is five times higher than 2008. Pensions are particularly vulnerable. It is going to be the biggest reset in 75 years. I’d say the dollar gets trounced to the point where it loses reserve status except every other industrialized country is debasing even faster.

Defauls en masse.

 

[DannyTS]

I would not look at the Fed's official statements for clues about the future market performance. Wasn't the Fed the one stating in early 2008 that the problem with the mortgage backed securities was "contained"? We all know what followed. The Fed rate increases proceeded 10 out of the 13 recessions and this time they are also pulling liquidity out of the system.

 

[DannyTS]

Based on the experience we went through during the Financial Crisis of 2008-2010, the following things occurred:

• Defaults were prevalent across all timeshare property classes, from the small independents to the largest and most prestigious names, including Marriott, Starwood/Vistana, Hilton, and Hyatt.
• Many owners simply walked away from their contracts and refused to pay their maintenance fees.
• Other owners--seeking to get out from under their maintenance fee obligations--offered to sell their units at what became fire-sale prices when supply began to out-strip demand.
• When the economy tanks, costs may or may not go down. What DOES go down is service levels and staffing.
• As mentioned above, maintenance fees may actually increase faster as default rates rise. Why? Because the costs to maintain these properties does not subside in a recession. Either maintenance projects are deferred, thereby reducing the quality of the resort, or maintenance fees for those who continue to pay will rise in order to maintain maintenance budgets.

would it make a difference if a timeshare is in a less mature stage? I am thinking the defaults may be higher if a higher percentage of owners are still paying for a loan in addition to the maintenance fees. On the other hand somebody that has paid off the loan (or paid cash, or bought resale) may be less inclined to walk away.

 

[bogey21]

The level of total debt (government, corporate, private) is five times higher than 2008.

At some point in time the level of debt is going to cause a major blow off. It is inevitable. I just hope it doesn't happen in my lifetime (age 84)...

George

 

[WalnutBaron]

would it make a difference if a timeshare is in a less mature stage? I am thinking the defaults may be higher if a higher percentage of owners are still paying for a loan in addition to the maintenance fees. On the other hand somebody that has paid off the loan (or paid cash, or bought resale) may be less inclined to walk away.

As you know, the profile of the resort itself has far less to do with the probability of defaults than the profile of the resort's owners. Those who've gotten over-extended during this unprecedented run of economic prosperity and decided to buy prepaid vacations in the form of timeshares are the ones who will first begin to unload them--either through default or fire-sales. Is there a correlation between newer timeshare properties and higher levels of debt by the owners? I doubt there is, but I'm no expert on that subject.

 

[CalGalTraveler]

It's an interesting thought, however I suspect that the people that can least afford a timeshare, and did not understand what they bought, want out in the first few years. Those who stick around and paid over 10 years are more financially stable unless there was a life event such as a lost job where they need a quick way out.

$100k+ developer prices today with financing make newer units even more at risk.

 

[TravelTime]

This is a good history of fed rate changes and significant events in the economy.

https://www.thebalance.com/fed-funds-rate-history-highs-lows-3306135

 

[chapjim]

[Deleted]

 

[easyrider]

I kind of doubt that quality timeshares or timeshare systems will be severely affected by a recession. Most households that bought these from the developer can afford their payments. Regarding the population under retirement age, as long as the economy can support jobs there really isn't any reason to think that these people will not want to travel and take advantage of the lower costs and higher amenities offered by timeshares.

For those that have retired and depend on investments for their income, their financial perspective may influence their decisions to spend on travel. When a portfolio takes a 20% drop, many people do not remember the gains. They just feel like they lost money. This feeling of financial loss, coupled with higher travel costs, could cause this group to decide to get rid of their timeshare obligations.

I kind of think that factors like health, more so than wealth, cause most of these older timeshare owners to reconsider travel. Currently, the median age of timeshare owners is 51. The entire timeshare industry in the USA has changed since the last recession. These days, many timeshares are a part of a hospitality chain or network.

My bet would be an increase of older timeshare owners wanting out because of health issues and an increase of older owners passing on that supplies the resale timeshare market.

https://www.consumerreports.org/travel/the-timeshare-comes-of-age/

There has also been a demographic shift among owners, which now number 9.1 million households. In 2014, consumers bought almost $8 billion worth of timeshare properties in the U.S., with an average sales price of $20,020 and average annual maintenance fees of $880. Though the median age of timeshare owners is 51, the concept resonates loudly with younger people. Among owners who have bought in recent years, the median age is 39. And half of them have children younger than 18 living at home.

Bill

 

[bogey21]

My gut tells me that Sellers will be those rebelling against rising MFs and that those buying will be well off enough that high MFs are not a deterrent...

George