Harry Van Sciver, Fairshare Director
The painless paradigm for economic forecasters is Nostradamus. This sixteenth century astrologer’s predictions were so vague that almost any event can be characterized as his ‘prophecy’ come true. So, when Sharon requested a 2024 economic forecast with impacts on the VOI industry, I was tempted to play it safe:
Taking a deeper look at these three generalizations…
Lower rates (Fed Discount Rate, SOFR, WSJ Prime) are good news overall, but will impact some industry segments differently than others. Almost everyone will be helped by a gentle dismount (CPI, CPE) from the recent wild inflation ride.
Developers, management companies and HOAs borrowing at variable rates will benefit from lower financing costs, while the increased money supply accompanying lower rates will ease credit for new construction, acquisitions, and refinances. Lower interest rates will be especially accretive for developers who finance portfolios, increasing their ‘spread’ between consumer interest paid versus interest charged by Lender or Investors. Reduced inflation will benefit management companies and HOAs, as costs of labor, supplies and utilities ease. Additionally, lower inflation and continued high employment will reduce economic pressure on consumer obligors, modestly improving portfolio and maintenance fee performance.
There will be a few stubborn pockets of high inflation and inelastic pricing, like the cost of flood insurance in coastal areas (and any insurance in Florida.) The “soft landing” will negatively impact a few resorts who can no longer raise prices dramatically like they did during the recent inflationary period. Lower inflation will give consumers more travel choices, so resorts that don’t adjust offers will see lower occupancy. Lower interest rates will create consumer expectations of reduced APR on new timeshare loan originations; and developers dependent on interest income will be impacted when credit-worthy consumers use home equity or unsecured lines to pay off high interest loans. As always, smart developers will offset reduced interest income by increasing down-payment requirements.
As for VOI Lenders, lower interest rates in 2024 will benefit some, be neutral for many, and hurt a few. Banks who imprudently loaded-up on Treasury securities before rates climbed will welcome lower rates which reduce their unrealized losses. Loan loss reserves should decrease for many banks in 2024 also, as better receivables ‘spreads’ improve key ratios for borrowers, and lower inflation facilitates timely consumer timeshare loan and maintenance fee payments. Although lower rates won’t reduce earnings for large lenders accessing the Federal Reserve and futures markets, smaller lenders and investors with a fixed cost of funds may suffer in 2024 when they can’t put money out at high margins without increasing risk. Small lenders may also be squeezed by competition when easier credit brings larger financiers into their market. As for lower inflation – that benefits almost all lenders holding outstanding loans, because the money repaid has more value than the lender expected when they lent it.
Related: Inflation is Up, Unemployment is Down
Lower inflation will enhance travel value and fulfillment for consumers, especially those with lower income or marginal credit. Resorts who effectively serve this segment will see improved sales, portfolio performance, and maintenance fee collections. Lower interest rates will benefit almost all consumers too, an exception being seniors living on interest income. Less interest will increase purchasing power for fractional buyers, as mortgage rates drop on financing provided by direct lenders. Consumers buying new timeshares or upgrading also will have access to lower rates, increasing their purchasing power via rate concessions from developers or alternative lending sources. On the topic of alternative lending, ‘Buy Now Pay Later’ short-term installment financing bears careful watching in 2024.
This trend may allow VOI buyers to bypass traditional financing and avoid credit reporting, while developers increase sales volume and reduce regulatory hurdles.
Continued threats to stability, safety, prosperity, and comfort will fragment vacation patterns and impel travel alternatives around the world.
Travel and exchanges to the Middle East and Eastern Europe will be severely curtailed, and significantly curtailed for China. Vacationers from these regions will be limited to the very rich, not a significant VOI segment. Many destinations in Africa, Central and South America will also be less attractive due to excessive heat, political instability, and safety concerns; while travel from these areas will be limited by continuing poverty. However, niches within Africa, Central and South America with relative safety and natural beauty will benefit from strong ecotourism.
Comparably strong and stable economies in the US and Canada will make them popular destinations in 2024, for both domestic and foreign visitors. Hawaii, Mexico, and the Caribbean should also remain popular outbound travel destinations, especially for US Consumers with money to spend. I am less sanguine about Western Europe, as the Euro is likely to strengthen against the Dollar.
Vacationers everywhere will make more granular, last-minute bookings, based on factors like weather, local conditions, exchange rates, and of course airfare and gas prices. 2024 bodes well for VOI companies who understand and track these factors, who monitor their impact on reservations and cancelations t each location and then adjust their marketing accordingly. Only international brands and multi-site clubs have the flexibility to adjust their marketing based on the aforementioned factors. But all resorts, even single-site or marginal locations, can leverage another opportunity that comes with our world polarized by political strife and climate change: Capitalize on “Otherness”. Those who segment “Family Values” versus “LGBTQ” versus “Celebrate America” versus “People of Color”, etc. will prosper in 2024.
A confluence of disparate trends and opposing energies is churning our industry, making it very susceptible to political redirection.
There is massive divergence in the practice and perception of timesharing in the US. The Bright Side: ARDA, exchange networks, big brands, and publications like Resort Trades all successfully promote timesharing, emphasizing fair sales practices, consumer protection, value, affordability and flexibility. Some regional developers, vacation membership companies, and single-site projects are also bright spots, focusing on fulfilment, employing best practices, and either prospering or dynamically re-purposing. The Dark Side: At many legacy resorts, members are aging-out and occupancy is declining. Maintenance fees skyrocket but don’t cover expenses, reserves are inadequate, and insurance is unaffordable. Some ‘vacation memberships’ lack value, giving consumers nothing more than access to a pre-exiting OTA. Meanwhile, timeshare exit charlatans blather to consumers that timesharing is a scam, while themselves trying to scam those consumers.
There is also increasing divergence in the timeshare regulatory and liability landscape. Certain states, including some which pioneered timeshare oversight, are now run by laissez-faire or reactionary politicians. These ‘public servants’ ignore marketing excesses and financial abuses, either choosing not to enforce existing laws, or ignoring sensible legislation to better protect consumers, insurers, and good operators. Other states have gone too heavy, with regulators forcing excessive reserve requirements, imposing onerous title regimes, or requiring excessive engineering studies. A few states have done both. Meanwhile, many Attorney Generals don’t enforce registration or offering plan requirements, either ignoring them altogether or delaying until the perpetrators and money are gone.
This enforcement void creates opportunities for predatory law firms, who often tarnish innocent resorts along with real transgressors, and drive-up expenses for all as they seek mostly money, not justice or better practices.
Our industry is ripe for consistency, moderation, and transparency – an environment where consumers are reasonably protected, where lenders and investors can accurately assess risk, and where the rules for developers, resorts, HOA’s and management companies are forward-looking and sensible. Under such conditions, smart companies offering good value to consumers will prosper. But we have learned that such an environment cannot come from self-regulation alone. My most optimistic prediction for 2024: We will elect more politicians and appoint more regulators who recognize that when all the interdependent parts of our VOI industry are equally protected, we will thrive.
Harry Van Sciver, has a lifetime of experience in the resort industry, with 41+ years in banking, collections, and receivables finance. He is the President of Whitebriar Financial (www.whitebriar.com ), which provides financing, equity, and transaction and consulting in the VOI industry. Harry is also an Outside Director of Fairshare Solutions (www.fairshare.solutions), which provides collections, customer recovery, and portfolio management to resorts worldwide. Harry has also co-owned several timeshare projects, writes fiction, and is a recovered rock and roll drummer.
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