Feature: Flip shows feeling the flop

Jamie Sturgeon | Financial Post | 11.22.08

"Big profits! Quick turnovers! Everyone's getting into the act! Live the dream of working for yourself while raking in the cash."

House flipping -- the act of buying, renovating and selling a property for profit -- was a seduction that tempted many during the real-estate market's near decade-long boom that's now sputtering.

Nowhere was that dream more enticing than on television, where networks in Canada, the United States and Europe crafted dozens of entertaining shows making the whole process look just so damn easy.

"How hard can it be to successfully flip a house?" the shows on HGTV, TLC and elsewhere, all seem to say.

As it happens, very hard, says Sam Kamoutsis, a veteran property flipper from Toronto.

"It's not easy," the 42-year-old says. "All these shows rarely show the hard work and knowledge that goes into it. You can't renovate a property in one week."

Mr. Kamoutsis, a former information technology consultant, rode the market between 1998 and 2006, when price wars were the norm across Toronto's red-hot housing sector.

In all, it took eight years to flip eight houses before he exited the market to focus on his real-estate business finding distressed properties for other, mostly commercial, flippers.

With falling home prices and credit more difficult to get, the ranks of speculative flippers are thinning by the day.

"It's becoming more and more difficult now," confirms Mr. Kamoutsis. "Even our regular deals are failing due to financing."

The Canadian housing index fell for a fifth straight month in October due to slumping home sales, Statistics Canada said this week. And last week, the Canadian Real Estate Association (CREA) said that nationally, the average price of a resale home last month suffered its steepest decline in 26 years, down 10% from a year ago, to $281,133.

Hardly the stuff of quick turnovers and big profits.

"We're seeing a lot of the homes that were renovated and are on the market now unfortunately sitting there," Mr. Kamoutsis says.

Not surprisingly, it's precisely at the market's peak that popular interest is highest, says Lawrence Smith, a professor on housing in the University of Toronto's economics department.

The boom in flip-style television programming since 2005, when U. S. network A&E first aired the seminal Flip This House, is a natural extension of this.

"You've got to view them in the context of the cycle," says Prof. Smith. "The programs start coming in the period when the market has been showing great increase for a few years. In that kind of environment, there's nothing really wrong with it in the sense that it's going to work. But it's going to work because of the basic market fundamentals."

Between 2002 and the end of 2007, home prices in Canada soared 78%, to $315,800 from $177,100, according to CREA figures.

Clearly, there was room to flip.

But there's an inevitable time lag that comes when a trend is identified by a network, a series is commissioned and is finally aired.

By the time Canadian shows, such as HGTV's The Big Flip (first aired in October, 2006) launched, there was little growth left in the market, Prof. Smith says.

"Now you're bringing people into the market and enticing them to go buy a house, renovate and think they're going to flip," he says. "And they're going to lose."

Home To Flip, another of the network's four flip-themed programs just debuted in October.

"All these kinds of shows have fueled this sense that flipping houses is a great way to make money," says Anna Gecan, vice-president of content at the lifestyle network. "And up until recently it probably has been."

It was also a great way for the network to rake in viewers. Through 2005 until August, 2007, viewer numbers grew by 40% on the strength of its real estate and renovation programming.

It was at the beginning of this year that numbers began to slip, Ms. Gecan says. Focus groups in March resulted in altering programming "to reflect the changing market."

That means cheaper renovation options explored by its shows, and "loving the home you're in," she says.

As for the future of flipping on HGTV, after two seasons, The Big Flip won't be returning for a third. The other three remain on the bubble.

"I do think we're going to have to look long and hard at whether this is really the right kind of programming for the moment," Ms. Gecan says about renewing the network's other flip-based shows.

"My sense is that we won't."