The crisis spreads to the art market

The impact of the financial crisis on the art market – traditionally perceived as a financial safe haven – is now clearly confirmed. A market downturn is no longer a theoretical scenario… it is a reality. Since the beginning of September, the art market has contracted for the first time since 1990. Although it survived 9/11, the meltdown of the global financial system has been too much for the “pleasure investment” market. The figures speak for themselves. Just a few hours ahead of the prestigious New York sales, Artprice has compiled an analysis of the results recorded at 2,900 auction houses around the world.

To the question: what impact is the global economic slowdown having on the art auction market? The answer is: a sharp correction of prices and an explosion of the bought-in rate.
To the question: are any segments of the art market likely to escape the trend? The answer is: no.

Compared with January of this year, the average prices of publicly sold art works during October contracted 14.5% . Retrospectively, the end of 2007 – beginning of 2008 now looks like the market’s peak.
According to our data, the prices commanded by artists in all segments of the market – from the speculative top-end of the market to the affordable segments (Our figures show an equally strong impact in the small provincial auction rooms and at the major prestigious auction houses: since the beginning of October, the crisis has had a significant impact.

And nor is the ultra top-end of the market, where masterpieces change hands for hundreds of thousands or millions of dollars, exempt from this overall trend.
Driven by demand from the nouveau riche in Asia, Russia and the Middle-East, prices were buoyant up until June. However, we see a clear contraction since the end of August. The bought-in rate has more than doubled in one year, growing from 25% at the end of 2007 to 54% in October 2008. Paradoxically, the prices of works presented above the 100,000 euros line (and which were successfully sold) have remained stable compared with the levels recorded 12 months earlier. On this segment of the market, bearing in mind the time lapse between the moment when works are valued and the final closing of the sales catalogues and orchestration of the sale, price adjustments are slow or inadequate. As reserve prices have not been adjusted to take into account the new market reality, the first expression of a new supply/demand equilibrium during periods of crisis is an increase in the bought-in rate.

Whereas the top-end of the market (4.1% of transactions) has shown relative price inertia, on the more dynamic segment of works offered for less than 100,000 euros, reactions have been more spontaneous: price adjustments are already underway. In this segment, the price index calculated using the repeated sales method has dropped 18% compared with October 2007!

The impact of the crisis has already spread around the world. Globalisation appears to be equally efficient in both directions; prices have contracted in New York, Paris and London – i.e. at the heart of the market – and in the new art market growth zones around Hong Kong, Singapore, and Dubai. The very latest results recorded in these new markets are extremely disappointing. Take for example the $16.9m overall revenue figure generated by Christie’s Middle East from its 29-30 October sales in Dubai compared with the $ 32 – 43m expected. In Hong-Kong in October 2007, Sotheby’s posted a bought-in rate below 10%. This year, at the same sales, this ratio was nearly 29%.

At the beginning of this year, Artprice warned that the art market would see signs of contraction in 2008, notably via “a recrudescence of buyer vigilance (that) could well start to manifest at auctions as a higher bought-in rate”. 2009 looks set to be a year of price contraction throughout the entire market. During the last art market contraction of 1990-1992, prices fell 44% in just 2 years. A correction of that magnitude is perfectly conceivable, especially considering the speculation to which the market has been subject over recent years: in the United States art prices rose 67% between January 2005 and January 2008. At an international level, art prices rose 48.9% over the same period, a stronger growth rate than the progressions recorded on the world’s principal stock markets (CAC40:+46.9% – Dow Jones: +24.5%) over the same period. Stock markets tend to react immediately. Announcements by the Fed or the ECB can impact prices on international financial markets in seconds. The art market functions with a completely different rhythm. Like the real estate market, the art market has a natural “interval” between cause and effect with transactions often taking several months to conclude.
However, on its website, Artprice posts a perpetual indicator reflecting the confidence levels, in real time, of the main players on the market: its Art Market Confidence Index. This market barometer registered a sudden drop of 13% at the start of October, almost in unison with the sharp corrections on stock markets. This greater degree of pessimism is essentially related to a change of opinions regarding the future evolution of art prices. Whereas during the summer less than a quarter of respondents anticipated a contraction in the quarter ahead, in October, the proportion of pessimists rose to over half.