2009 R.I.P. and those Dead Cat Bounces...

[PerryM]

Just got back from 2 wonderful vacations – one at the Hyatt Sunset Harbor in Key West, FL for Christmas week and family and friends vacation at Park City at the Park Plaza over New Years week – thanks WorldMark for the great exchanges (we also own at the Park Plaza). Our Park Plaza vacation had us staying in 3 1-BR units and we had just a ball.

Thank timeshares for the memories.

I’ve been forecasting the “timeshare bubble bursting” for a few years now and I can’t think of a better year than 2009 for it to unravel. For 40+ years the timeshare industry has created a phony market that has little bearing to the underlying real estate that it sells (Disney and other RTU units are exempt). Every Friday we could count on the developer hiking up the prices and warning Ma and Pa who stumbled into the sales gallery for that free gift that a price increase was coming.

Well for the past 2-4 years our government has been selling us out for a handful of votes – both parties are guilty of this. So we have come to the point where in Q4 of 2008 the USA has become bankrupt – the total worth of all the folks here and the corporations owned by them can’t equal the unfunded liabilities we, as a nation, owe. Bankruptcy of the USA has never happened before (maybe while we fought our war of independence; I don’t know) but we now are in the same boat at some of our largest corporations.

We only are worth about $57 trillion dollars and our government is handing out trillions of dollars like candy to all those that can then grease the palms of the politicians who are after reelection. $1 trillion is about $3,300 for each man, woman, and child who live in the USA. Throw in interest charges and inefficiencies of collecting that money and that’s easily $5,000 that will have to be paid back for each person.; per trillion dollars Almost every day the government is talking about handing out another trillion dollars – when will it stop?

The largest Ponzi scheme ever created – Social Security – will join the headlines as the “Sub-prime mortgage fiasco”, “Fannie May and Freddie Mac fiasco”, “Ponzi scheme fiasco” and other headlines that point out that our government has gone insane.


What does this have to do with timeshares? I believe they will face reality and implode like the rest of real estate. Many folks look to Q4 2009 to bottom out the real estate market. As of today the timeshare industry hasn’t reflected the 12% loss from the high of a few years ago – the timeshare industry is a phony market which has not reflected supply and demand.

Some timeshare developers will survive and some will probably join the Edsel as an idea that made sense at one time but later folks shake their heads and ask “What were they thinking?”

Some timeshare resorts will probably succumb to owners just walking away from the MFs and developers going belly up.

What to do:
I visit many chat rooms and I don’t come to chit chat normally – I give my opinion and hope to learn other view points. Here are my opinions of the timeshare industry on Jan 4, 2009:

Look at Zillow and see the average USA home fall from $238k in Q4 of 2006 to the average today of about $209k – a loss of 12%.

Buying a timeshare:
For those of you daredevils who think today is a great day to snap up a timeshare use Zillow to find real estate near the timeshare and see what kind of loss they have experienced. Since I was just at Park City, UT, you can look up Utah and see that has suffered the same 12% loss as the rest of the USA. (Park City doesn’t have the details needed to compile the sales stats)

Developer:
So when will Marriott reflect a 12% drop in the sales price for their Summit Watch and Mountain Side? Who knows? But they have decided to ignore reality and just hold their record high asking price while they look for Ma and Pa to stumble into the sales galleries to buy at all time record asking prices.

Do the same with any timeshare you might want to buy and ask the developer why they haven’t lowered their prices like everyone else. Who knows, maybe they might do something for you. Marriott is just an example – pick any developer and do the same.

Resale:
Since some developers have stopped exercising their ROFR resale prices should come down – if not, why not? Can we finally answer the question if the ROFR holds up resale prices - you decide.


Selling your timeshare:
For those of you feeling the pressure of ever increasing MFs and want to sell – expect to get whacked very hard for wanting to sell now. Only you know how much you are hurting and maybe selling your timeshare for $1 feels good now but when timeshares do recover you know you will be kicking yourself in the butt.

My advice:
(If you should care) DO NOTHING – don’t buy and don’t sell. Use the timeshare exactly as the developers sell them – hold on to them and take fantastic vacations.

The RTU timeshares, like Disney, don't reflect real estate prices at all. They are simply pre-paid vacations but if timeshare owners rent their units to cover the MFs expect even Disney to feel the bubble bursting.


When the timeshare bubble bursts and its time to buy:
Zillow will show when the real estate market turns around – the developers, like Marriott, will start to exercise their ROFR and start buying firesale bargains again – this would be 2 indicators to verify that a bottom might be in and its time to buy a once-in-a-lifetime timeshare bargain.

Dead cat bounce:
In the stock market there are false bottoms reported all the time – they have the affectionate title of “Dead cat bounce” – I would certainly expect some in real estate too. So just because a few indicators might show a bottom – there will be 40+ years of phony-baloney prices that will finally reflect reality.

So that’s my opinion – I’m sure you have yours. It will be fun to watch all of this unfurl in 2009 and hopefully some here will do well and not too many will blunder and get stuck.

Just remember that there are bulls, bears, and pigs – the pigs always get stuck.

Conclusion:
We are happy timeshare owners and plan to use them as they are advertised - for vacations and to be passed down to heirs.

Happy 2009 to everyone.

 

[Bill4728]

My advice:
(If you should care) DO NOTHING – don’t buy and don’t sell. Use the timeshare exactly as the developers sell them – hold on to them and take fantastic vacations.

IMHO, this is great advice. I can't justify adding to our collection of 5 week of TS and I'm not selling at these prices. ( I know, they may go lower but why sell when I like what I own?)

 

[Patri]

So Perry, tell us what you think.

 

[calgarygary]

Well for the past 2-4 years our government has been selling us out for a handful of votes

Wow! This has only been going on for 2-4 years? Speaking for myself, and maybe most Canadians, you are very lucky if U.S. politicians have only been selling out for 2-4 years. I always thought that politician and sell out were synonyms.

 

[sernow]

I'm getting tired of the negativity.

 

[Jennie]

From my limited experience with Zillow, it has totally incorrect price values of homes in our area. People here are joking about it, saying that we should print out Zillow's alleged value of our homes and submit it to the Village tax Assessor's Office with a request that they reduce our real estate taxes by 50%.

Zillow shows that we purchased our home in 1998 for $xxxx. The fact is that we have owned our home since 1984, and it cost more than that price way back then. We did extensive renovations during the first 5 years of ownership which greatly increased the value.

So where does the 1998 Zillow price come from? In 1998 we obtained a Home Equity Line of Credit for 20% of the then value of our home. (We used it to purchase a co-op for our daughter. She has since paid it off and her co-op in New York City is still now worth three times what we paid for it). Yet Zillow shows us buying our home for the HELOC price.

We know the approximate current value of our home based upon recent sales of very comparable homes in the area, including a much smaller one with 10% of the land we have. I can tell you that Zillow's current value of our home is 80% lower than the correct price.

 

[DeniseM]

My advice:
(If you should care) DO NOTHING – don’t buy and don’t sell. Use the timeshare exactly as the developers sell them – hold on to them and take fantastic vacations.

Perry - I just bought an ocean front timeshare on Kauai for for $98 total, including closing. If resale prices fall to 98¢ next year, oh well - I've lost $97. I think there are some great bargains out there already.

 

[taffy19]

IMHO, this is great advice. I can't justify adding to our collection of 5 week of TS and I'm not selling at these prices. ( I know, they may go lower but why sell when I like what I own?)

Same feeling here but some people will find a gem at a fantastic price unexpectedly like Denise did recently with her oceanfront unit. They are worth owning and enjoy. They are out there so you never know when a good buy comes along. People have to make their own decision what is good for them or not. If you go to Hawaii, you may as well stay several weeks as it is a long flight even from the west coast.

Happy New Year Perry!

 

[PerryM]

**NEW** timeshare rule.....

Perry - I just bought an ocean front timeshare on Kauai for for $98 total, including closing. If resale prices fall to 98¢ next year, oh well - I've lost $97. I think there are some great bargains out there already.

This is great! Congratulations.

Well, maybe I should amend my advice to HOLD and say that if you find a timeshare that costs less than your weekly grocery bill it can’t go down much further.

So my new advice is:
HOLD off buying or selling a timeshare unless 2 bags of groceries cost more.

However, that assumes that the timeshare resort will remain alive – if a person has done their due diligence, which includes checking out a mature resort, and the delinquency rate makes sense (10% I’m guessing) When we bought our Park Plaza in Park City the delinquency rate was around 35% (called the HOA and asked) but they were finalizing a deal to sell ALL those delinquent weeks by a developer – so I bought in very low.

So maybe a new benchmark for timeshares should be used – if they cost more than 2 bags of groceries hold until either food goes up or the unit goes down in price.

Or, maybe we can index the timeshare to the free gift the developer is handing out:

Never buy a timeshare that costs more than the free gift the developer hands out.

Yes; I like that one.

 

[bnoble]

Also, don't forget that every unit you own that you can't use personally has to be used for something. At this point, it's no longer the purchase price that matters, but the annual fees.

 

[PerryM]

More great rules....

Also, don't forget that every unit you own that you can't use personally has to be used for something. At this point, it's no longer the purchase price that matters, but the annual fees.

This is good too:

Never buy a timeshare that costs more than the annual maintenance fee.


I think we are redefining the timeshare industry right here in this thread!

So maybe we could have 2 rules:

Aggressive buyer:
Buy when the timeshare costs less than the MF.

Conservative buyer:
Buy when the timeshare costs less than your wrist watch.

Now we need some rules for selling..... (and not the $1 on eBay one)

 

[thinze3]

I personally like the Disney comment - "prepaid vacations".
BUT, what are the MF's at the Disney resorts? Are they comparable to Marriott?

 

[x3 skier]

I believe Zillow's Specific valuations as much as I believe a politician's promises.

Still they are a pretty good source for general data.

I have the Time Sahres I need and use so buying and selling at this time unless its a true deal resale is out of the picture. :zzz:

Cheers

 

[PerryM]

RTU - the correct timeshare model?

I personally like the Disney comment - "prepaid vacations".
BUT, what are the MF's at the Disney resorts? Are they comparable to Marriott?

The funny thing is that RTU timeshares might do just fine in the tsunami that is about to overtake the timeshare world. I’ve always been a proponent of RTU and Disney has sure set a standard that’s hard to beat.

When timeshares were cooked up, the idea of “Own the resort” was planted as the marketing gimmick – in reality when you slice a condo into 52 units it completely leaves the real estate world and enters the Twilight Zone – the reason resale values can easily go to $1 for the unit on eBay.

The RTU, on the other hand, revert back to the developer who can blow the thing up and rebuild a brand new resort to then resell.

A RTU is easy to price – take the cost to rent the exact unit and cut that in 1/3 or 1/4 and multiply by the number of vacations and then add in the MFs – that cost must be less than renting or it’s a bad idea.

Each year the price of the RTU should go down to reflect reality. But in Disney’s case the dream to stay at a Disney timeshare is so great that folks seem to ignore this rule.

And if Disney is smart, which they are, they will simply add on more years to the RTU for a fat price and folks will gladly pay. So how long will the RTU last? 50 – 60 years? Then I’d imagine Disney has a new trick up it’s mouse sleeve and allow folks pre-construction pricing on the new resort to replace the old one.

Meanwhile the traditional timeshare sells for $1 on eBay – so was the RTU the correct model that the timeshare industry should have used from day one? Will it be the model for the future?

P.S.
As I've posted before the ideal timeshare is one that reflects the underlying real estate value. A RTU with the resort being sold at the end might just do that - the proceeds of the sale go to the "owners" at the end. There are lots of new ideas that timeshares might adopt in the future.

 

[Bill4728]

Each year the price of the RTU should go down to reflect reality. But in Disney’s case the dream to stay at a Disney timeshare is so great that folks seem to ignore this rule.

And if Disney is smart, which they are, they will simply add on more years to the RTU for a fat price and folks will gladly pay. So how long will the RTU last? 50 – 60 years? Then I’d imagine Disney has a new trick up it’s mouse sleeve and allow folks pre-construction pricing on the new resort to replace the old one.

Disney started doing just that last year. Adding years to it's RTU for a significant fee. I think the deal was to add another 15 years to the contracts, but I'm not sure.

 

[Bill4728]

So maybe we could have 2 rules:

Aggressive buyer:
Buy when the timeshare costs less than the MF.

Conservative buyer:
Buy when the timeshare costs less than your wrist watch.

I really like your idea of the watch. If you're cheap like me, your watch is very cheap. But if you own a $$$ watch, you likely can afford a significantly priced TS.

 

[PerryM]

What an idea...

I really like your idea of the watch. If you're cheap like me, your watch is very cheap. But if you own a $$$ watch, you likely can afford a significantly priced TS.

It occurred to me, as I took my shower, that I did have a brainstorm here - the watch.

I just ooogled over a Casio at Sams for $185 yesterday - this thing had an electronic compass, barometer, altimeter, solar powered, atomic clock, and a bunch of things that I had no idea what they were but I'm going to buy it at some point.

Then there are the high rollers who buy a $50k Rolex and those folks can now buy a timeshare from the developer if they want.

Sometimes I even surprise myself.....

P.S.
Maybe the developers can latch onto this idea - in their ads they could cosponsor with Rolex, Casio, or Timex - you would know instantly what kind of timeshare they are selling and their asking price.

P.P.S.
This could be another qualifier when you go on a sales tour - in addition to asking for your net worth and yearly income they would demand to know how much you paid for your watch.

They could have different rooms where you wait for the salesrep to come in and sell you a timeshare - the "Rolex room", the "Casio room", the "Timex room", and the "Can't afford a watch" room. I could see folks buying a higher priced watch to get into the right room...

Boy; this is a great idea...

 

[thinze3]

...They could have different rooms where you wait for the salesrep to come in and sell you a timeshare - the "Rolex room", the "Casio room", the "Timex room", and the "Can't afford a watch" room. I could see folks buying a higher priced watch to get into the right room...

Boy; this is a great idea...

Penthouse view, high floor ocean view, low floor pool view, and dumpster view.

 

[x3 skier]

The only one I go to now is the "I don't need a watch any more so I don't even look unless you give me a really really really good freebie" room.

Cheers

 

[bnoble]

This could be another qualifier when you go on a sales tour

I'll bet you a donut that the top producers already do this---take a quick look at the watch and the shoes, and decide right then whether you are selling this mark, and for how much.

 

[thinze3]

I'll bet you a donut that the top producers already do this---take a quick look at the watch and the shoes, and decide right then whether you are selling this mark, and for how much.

Funny you mention that. My salesman in Hawaii (summer 2007) told me that he can spot a person when they walk in a room; whether or not that person can afford, finance, or pay cash for a timeshare, just by the way he is dressed. He specifically mentioned the watch.

 

[Vacation Dude]

Perry - I just bought an ocean front timeshare on Kauai for for $98 total, including closing. If resale prices fall to 98¢ next year, oh well - I've lost $97. I think there are some great bargains out there already.

That would be a 98.979% loss but I am sure this will sting a lot less than Bernie Madoff's investors 100% loss

 

[x3 skier]

Funny you mention that. My salesman in Hawaii (summer 2007) told me that he can spot a person when they walk in a room; whether or not that person can afford, finance, or pay cash for a timeshare, just by the way he is dressed. He specifically mentioned the watch.

It should also give them a clue about how hard the deal (if any) is going to be. If they had the cash to afford the pricey watch, they probably got (and keep) their money by making good deals.

Never knew a TS Sales weenie who let the customer's finances stand in the way of a sale.

Cheers

 

[Kay H]

I guess I'd better watch my medical bills real closely. On my last visit to my cardiologist in Nov, he asked me what was on the face of my watch. He couldn't quite figure it out. Actually I was very surprised when he asked.

Ching-a-ching. More cardiac tests to be scheduled?????

 

[Vacation Dude]

Funny you mention that. My salesman in Hawaii (summer 2007) told me that he can spot a person when they walk in a room; whether or not that person can afford, finance, or pay cash for a timeshare, just by the way he is dressed. He specifically mentioned the watch.

That's why I don't wear a watch.