I posted this because my wife and I purchased a timeshare from a tax sale for $200. We were the only bidder on that share and only 3 timeshares sold out of about 55. We traveled to the timeshare about year ago and talked to some original owners from the 1980′s. They purchased their units $10,000 to $15,000 usually financed.
I posted this article not to talk about my timeshare but to illustrate how the shutting down of the HELOC withdrawal machine has affected timeshares in two ways. First, people are not purchasing these timeshares either with cash or financing. Second, the loan owners can’t withdrawal equity from their homes to fund vacations they can’t afford in the first place.
Timeshare Prices Plummet to $1
By AnnaMaria Andriotis | SmartMoney – Wed, Apr 4, 2012 1:17 PM EDT
Unable to sell his parents’ ocean-front timeshare for the past year, David Suder became so fed up he offered to give it away. They paid $8,000 for the Orange County, Calif. unit a decade ago, but since there are no willing buyers, and his 81-year-old mother, now a widow, can no longer afford the monthly maintenance fees, Suder says he doesn’t have a choice. The San Diego-based real estate investor is offering the unit for free in the hopes that someone will take it before his mother dies. “I don’t want to inherit it,” he says. “I want it to go away.”
While real estate – and even vacation real estate – is starting to show signs of recovery, timeshares remain in freefall. During the first quarter, the number of for-sale-by-owner postings doubled compared to the same period a year ago on RedWeek.com, a popular resale site. Another site, SellMyTimeshareNow.com, says owner sales are up 20% during that period.
Experts say even in better times, most sellers never saw a return on their investment. “Very few timeshares increase in value,” says Alisa Stephens, executive producer at RedWeek.com. As values sink and desperation grows, the number of owners giving their timeshares away for $1 – or less — has doubled in the past year, says Brian Rogers, of Timeshare Users Group, an owner advocacy group. “There’s never been a worst time to try to sell a timeshare,” he says.
Just like homes timeshares should be viewed as an consumption item not an investment.
Typically found in resorts, timeshares allow multiple buyers to purchase rights to use a property, like a hotel room, suite or condominium, for one to two weeks per year over a long period of time. They appealed to buyers who believed the timeshare’s purchase price was lower than the total amount they’d spend for hotel stays on future trips. Timeshare owners could also invite family and friends to stay with them for free.
Timeshares were only cheaper than vacations if the owner just paid the HOA fees. But most owners paid a premium on the price and was usually financed at rates much higher than today.
Those perks never materialized for many timeshare owners who had to cut back on travel since the recession. Others couldn’t afford their timeshares after losing their jobs. Up to 48% of timeshare owners are behind on their annual maintenance payments by at least a year – up from 37% in 2007, according to TimeshareResortCollections.com, which helps resorts to recoup past due payments. The company covers about 80% of the timeshare industry.
To make up for these losses, resorts have been increasing the maintenance fees on the individuals who continue to use their timeshares. Average annual maintenance costs hit an all-time high of $731 in 2010, up more than 8% from the year prior, according to the latest data from the American Resort Development Association. Experts say those costs are still rising. And for some owners, they’re a big reason to sell, says Lisa Ann Schreier, director of Timeshare Insights, a consultant to timeshare buyers and sellers.
Faced with rising medical bills, John Chase, 62, and his wife decided to sell their timeshare at a megaresort in Orlando. After the listing lingered on the market for two and a half years, the couple chose to give it away just so they could avoid the maintenance fees. Though they bought it for $4,000 in the late ‘90s, they ended up selling it for just $1. Chase says he never expected to sell so low, especially since the sales pitch he received when he purchased the timeshare led him to believe its price might increase.
The next generation of home buyers can’t afford homes. Timeshares to that generation are not a priority.
For their part, resorts are changing their approach to timeshares. Howard Nusbaum, president and CEO of ARDA, says consumers should buy timeshares to use them – not as an investment. Resort developers, he says, are now marketing timeshares to a smaller group of high-income consumers who are more likely to be able to afford timeshares and who don’t need a loan to purchase them. Sales between resorts and buyers totaled $6.4 billion in 2010, according to the latest data, down 40% from their peak in 2007, according to ARDA. Experts say 2011 data isn’t expected to be much better.
The data is in stark contrast to vacation homes, where demand is rising. Roughly half a million vacation homes sold in 2011, up 7% from 2010, according to data released last week by the National Association of Realtors.
To be sure, some timeshares are retaining values better than others. Owners with timeshares at brand-name resorts are likely to recoup the most, especially if those locations are in areas where real estate supply is limited, like Key West or Myrtle Beach, says Jason Tremblay, CEO of SellMyTimeshareNow.com.
Before selling at a huge loss, timeshare owners might want to consider some alternatives. Stephens suggests renting the timeshare to vacationers at a price that covers the annual maintenance fee but is cheaper than what travelers would pay to stay at a hotel. Or consider asking the resort if it will buy the timeshare back; the price it might offer won’t be near what the owner paid the developer originally but could be higher than what other buyers are offering.
Other sellers say they’ll hold out until a buyer comes along. Joe Cantu and his wife paid $15,000 for a two-bedroom suite at a high-end resort in Las Vegas seven years ago. They recently welcomed a new baby, and they’ve been trying to sell the timeshare. His asking price is $3,500, but despite the resort’s amenities, which include a putting green, sand-bottom pool and in-room massage services, he hasn’t received offers close to that in the eight months it’s been on the market. “I’ll just keep it posted as long as I need to,” he says.
Costa Mesa Overview
| Median home price is $414,000. Based on a rental parity value of $565,000, this market is under valued. |
| Monthly payment affordability has been improving over the last 7 month(s). Momentum suggests improving affordability. |
| Resale prices on a $/SF basis increased to $287/SF to $290/SF. |
| Resale prices have been falling for 11 month(s). Price momentum suggests falling prices over the next three months. |
| Median rental rates increased $133 last month from $2,250 to $2,383. |
| Rents have been rising for 6 month(s). Price momentum suggests rising rents over the next three months. |
| Market rating = 6 |
Proprietary OC Housing News home purchase analysis 
1025 West WILSON St Costa Mesa, CA 92627
$409,900 …….. Asking Price
$311,940 ………. Purchase Price
1/17/2012 ………. Purchase Date
$97,960 ………. Gross Gain (Loss)
($24,955) ………… Commissions and Costs at 8%
============================================
$73,005 ………. Net Gain (Loss)
============================================
31.4% ………. Gross Percent Change
23.4% ………. Net Percent Change
114.4% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$409,900 …….. Asking Price
$14,347 ………… 3.5% Down FHA Financing
4.04% …………. Mortgage Interest Rate
30 ……………… Number of Years
$395,554 …….. Mortgage
$107,122 ………. Income Requirement
$1,898 ………… Monthly Mortgage Payment
$355 ………… Property Tax at 1.04%
………… Mello Roos & Special Taxes
$102 ………… Homeowners Insurance at 0.3%
$412 ………… Private Mortgage Insurance
………… Homeowners Association Fees
============================================
$2,767 ………. Monthly Cash Outlays
($295) ………. Tax Savings
($566) ………. Equity Hidden in Payment
$20 ………….. Lost Income to Down Payment
$122 ………….. Maintenance and Replacement Reserves
============================================
$2,049 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$5,599 ………… Furnishing and Move In at 1% + $1,500
$5,599 ………… Closing Costs at 1% + $1,500
$3,956 ………… Interest Points
$14,347 ………… Down Payment
============================================
$29,500 ………. Total Cash Costs
$31,400 ………. Emergency Cash Reserves
============================================
$60,900 ………. Total Savings Needed
——————————————————————————————————————————————-
This property is available for sale via the MLS.
Please contact Shevy Akason, #01836707
949.769.1599……
sales@ochousingnews.com…..
We're sorry, but it seems that we're having some problems loading MLS # :U12001359 from our database. Please check back soon.
Competing Listings
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$330,000 2210 CANYON Dr Unit E1 |
0.08 miles 2 bd / 1.75 ba 1,360 Sq. Ft. |
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0.52 miles 3 bd / 0.75 ba 1,033 Sq. Ft. |
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$1,200,000 1143 AVIEMORE Ter |
0.57 miles 3 bd / 1.75 ba 1,496 Sq. Ft. |
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$399,000 2203 WALLACE Ave |
0.65 miles 3 bd / 1.75 ba - Sq. Ft. |
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$475,000 682 GOVERNOR St |
0.88 miles 3 bd / 1.75 ba 1,011 Sq. Ft. |
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$384,000 2086 POMONA Ave |
0.91 miles 3 bd / 1 ba 1,000 Sq. Ft. |
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$334,700 810 TOWNE St |
1.13 miles 3 bd / 2.5 ba 1,136 Sq. Ft. |
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$299,900 10166 HOLBURN Dr |
1.39 miles 3 bd / 1 ba 1,120 Sq. Ft. |
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$599,000 20762 HOPETOWN Ln |
1.54 miles 3 bd / 2 ba 1,441 Sq. Ft. |
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$795,000 424 COLTON St |
1.79 miles 3 bd / 1.75 ba 1,233 Sq. Ft. |
For more news, market analysis and property profiles, please see the OC Housing News.
Edward DeMarco is my new hero. He gets the problem, and he is willing to tell it like it is.
Big Numbers Still Don’t Sway DeMarco Towards Principal Reduction
While arguments continue to be made that Fannie Mae and Freddie Mac should apply principal reduction to keep underwater borrowers from going into foreclosure, Edward DeMarco, FHFA acting director, still has plenty of ammo to defend his highly criticized stance.
During a speech at the Brookings Institution Tuesday, DeMarco, despite revealing figures that showed the GSEs could potentially save $1.7 billion through the application of principal reduction, still cited reasons to be wary of the proposed foreclosure prevention solution.
For one, the $1.7 billion savings is a big “if” since all 691,000 borrowers would have to participate. The 691,000 includes the underwater delinquent population of GSE mortgages, plus 5 percent of the current ones that could transition into delinquency. DeMarco also explained that if 90,000 borrowers decided to get a strategic modification, as in miss payments or claim a hardship to qualify, the $1.7 billion in benefits would be eliminated.
DeMarco also showed data on the performance of modified Fannie Mae loans, which indicated that the loan-to-value (LTV) ratio was not strongly related to whether or not a borrower was current. A chart in the written portion of his speech revealed that borrowers with LTV ratios ranging as high as 190 percent and as low as less than 80 percent all had a similar percentage of loans current, falling around 70 percent.
Instead, loan performance, DeMarco said, is a matter of the payment changes. A separate chart showed that 79 percent of HAMP loans with a payment decrease of 30 percent were current, as opposed to 60 percent of loans with a payment decrease between 0 and 10 percent.
So, rather than focusing on the total value of the home versus what is owed, the two charts indicated it is about monthly reductions.
Even with this data on Fannie Mae loans, DeMarco also noted contradictory claims, stating that historical data has shown the probability of default does correlate with the borrower’s current LTV ratio, and a higher ratio leads to a greater likelihood of default.
“So, in theory, by forgiving principal and reducing a borrower’s current LTV ratio, the probability of default is reduced and losses are reduced,” said DeMarco.
When comparing the default rate of borrowers receiving principal forgiveness versus those who receive principal forbearance, DeMarco also said borrowers receiving principal forgiveness default less often.
However, the debate is not just about the borrower; investors’ losses are considered as well.
“[T]he present value of the cash flows to an investor is higher for forbearance modifications than for principal forgiveness, as the upside return of the forborne amount is preserved,” said DeMarco.
DeMarco also said, “FHFA would have to consider the operational costs of implementing the program, and borrower incentive effects given that three quarters of the Enterprises’ deeply underwater borrowers are current.”
Even though the GSEs account for 60 percent of all loans serviced in the U.S., DeMarco refuted claims that his current decision is going to prevent economic recovery.
With an estimated 11 million underwater borrowers, and some 600,000 plus borrowers potentially eligible for a HAMP principal reduction, DeMarco concluced the recovery does not rest so strongly on his decision.
“This is not about some huge difference-making program that will rescue the housing market. It is a debate about which tools, at the margin, better balance two goals: maximizing assistance to several hundred thousand homeowners while minimizing further cost to all other homeowners and taxpayers,” said DeMarco.
What are the legal ramifications of walking away from a timeshare?
I wonder if we will start to see negative prices/people getting paid for taking a time share.
The killer with timeshares is the annual fee which you can’t get rid of.
You are not just giving it away for $1, someone is taking over a large annual maintenance fee. Lots of people pay to have someone take the timeshare off their hands because of the annual liability.
The maintenance fees are so high you are better off just renting a room at the resort.
I guess Joe Cantu doesn’t need cash bad enough at the moment for his family and new baby to take the timeshare off his hands. I love the behavior of people who think by holding out, magically everything is going to get better. Maybe it will, but most likely, it’s simply a matter of how long someone is willing and/or financially able to hold on to a sinking ship before giving up on the idea it will ever float again. Probably a very interesting subject to analyze from a psychology perspective. I’m still in awe of the naivete of people though, many whom I personally know that are in terrible financial shape now, who were hooked on the ideas of timeshares. Many of these people I know are now in their 30′s and they fell prey to the whims and biases of their parents’ generation and baby boomers who sold them a bill of goods.
It never ceases to amaze me what sucker costs people will pay in order to “save a buck” and in the end they end up paying exorbitantly higher hidden costs in the long run. I.E. homeownership with HOAs and Mello Roos, boat ownership, timeshares, storage units… I guess the horrible thought of “renting” a hotel room, yacht/boat, or house/apartment just outweighs the financial sense to avoid paying crushing carrying costs to “purchase” these items with money they don’t really have. And ironically enough, these same suckers are usually the ones who have no problem “renting” a storage unit to fill with their piles of junk that overflow out of their closets and garages. But again, they somehow think paying for a storage unit gonna save em money over the long-term cause their old junk will be worth something someday. Ha!