Blaming HGTV for the Housing Bubble Is Just Plain Silly

Jim Sollisch, creative director at Marcus Thomas LLC, wrote what I presume is a satirical editorial in The Wall Street Journal: “Blame Television for the Bubble”. Sollisch humorously leads us through HGTV shows where couples are obviously spending beyond their means, and have overly optimistic assumptions of the value of luxurious upgrades and renovations. He finds irony in a “House Hunters” episode where a couple in their 20’s is shopping for homes priced from $425K to $675K, and wanders how much money they could possibly be earning.

My first reaction is blaming HGTV for the housing bubble is like blaming Robin Leach’s “Lifestyles of the Rich and Famous” for running up our credit card balances. I too am addicted to HGTV and the house flip shows on A&E and TLC. But I watched them to see how much more ridiculous each flip became. The prices paid and the expected selling prices for overly improved flips increased with each episode. Faux stainless steel appliances and a little granite were installed to pretty up 1,000 square foot 2 bedroom, 1 bath houses. Then the California flippers expected to get close to $1M. The culmination came with the expectation of making money flipping a $400K dump in a rundown Los Angeles neighborhood.

As usual, TV follows trends rather than creates them. You can’t blame “Dallas” and “Dynasty” for creating the culture of greed in the 1980s. And TV did have some semblance of balance when you consider TLC Kirsten Kemp's Oprah Winfrey-like home spun advice. Kemp often warned “Flip that House” and “Property Ladder” participants to watch their budgets and not overspend for the neighborhood. While the shows’ intro voiceover told us the risks were high, they got the juices flowing by telling us there’s money to be made. Being risk adverse (at least in real estate), I could never justify the risk-benefit in any of the episodes I saw. I always thought the participants paid too much, over improved, and were extremely lucky to get the properties sold.

Kemp’s advice was not always taken, much to the flipper’s regret. As the housing bubble waned, so did profits. More and more homes were sold at a loss or did not sell at all. I thought it served them right. Now Kemp warns in a tough market you have to be especially careful. Her advice for the value of improvements and how to salvage as much value from what features your home has already is a benefit to all homeowners.

Comments

[Crocodilian:]

It would be nice to blame someone. There are scoundrels, of course, but the house appreciation game made all but a few perma-bears into something very much like a Madoff investor: If you thought about it, you realized something had to be wrong (how do asset prices double, when household income is essentially static?) . . . but doubting didn't pay; the small band of doubters were the ones gloomily renting condos while all the fun was being had by more aggressive sorts.

One underestimated factor is the "fear of losing out"-- the danger that someone else is getting rich flipping condos, while you do the boring responsible thing, and build up equity.

HGTV and similar pop finance media are more symptoms than causes, but its hard to escape the conclusion that even a prudent investor might be influenced by all the voices saying "buy and lever"; prudence is a virtue which needs to be nurtured, particularly in the face of speculative excess.

Jan 05 04:46 AM

[baldguy:]

I want the names and phone #s of the buyers on these shows-BOY HAVE I GOT A DEAL FOR THEM!!!! ;)

Jan 05 11:40 AM

[Urbane Gori...:]

Oh sure! And I suppose that Pampers has 'nothing' to do with the baby boom either..... Give me a break! next you'll be saying that there wasn't any 'yellow-cake' in Iraq either!

jegan ;-)

Jan 05 04:53 PM