The art market — on the brink of the abyss?

Artprice Index: down 15% between June and September 2002
For the first time in ten years, all the indicators for fine art auctions find themselves in the red. The unsold rate has never been so high (44% in September), while the number of lots is also in freefall (-46.7%). With prices also tumbling after the summer lull, the signs look bad for the remainder of the season. US demand, still in evidence at the start of the year, is waning and no longer able to support a market that was already fragile back in July. The downturn has swept through the main sectors of the economy and is now threatening to overwhelm the art world, at a time when the stock markets are still taking a battering.

Artprice Monthly Benchmark [September 2002 compared to September 2001]   Growth rate Trends Turnover -21%  Number of transactions -47%  Lots sold / Lots put on sale -14%  Price index of paintings -8% 

The slump has been violent — sharp enough to be called a crash. But unlike shares, artworks have not been the subject of speculation. The slide in prices over recent months seems all the more dramatic as they had held up well at the start of the year, thanks to the selectiveness of collectors. EUR 100 invested in a painting in September 2000 has shrunk to an average of EUR 87 two years on. We have to look back to spring 1999 to find prices this low.

The current downturn is the logical consequence of the way the recession is spreading. It has taken its time — the market still looked healthy in the spring/summer season, when the price index defied a 14.7% drop in sales to make a 9-point gain. Collectors’ concerns made them increasingly selective and only the most attractive works could find a buyer. But when a work of real quality came up, the bids flooded in, feeding a certain bullishness in the market. This peaked on 10 July, when Peter Paul Rubens’ The Massacre of the Innocents was knocked down for a record at Sotheby’s London.

The crisis seems primarily an American one. The US has now lost its market leadership to the UK and its market share has slipped more than nine percentage points so far this year. What’s more, the US market was moribund in September, as the country remembered the previous year’s attacks and the world waited to see the results of the UN meeting on 12 September. The result was that 47% fewer lots were sold than in September 2001. New York proved disappointing in November, when all attention was on prestige auctions at Sotheby’s, Christie’s and Phillips on 4, 5 and 6 November. Phillips set the ball rolling with a new record: 25 lots bought-in out of 44 offered. From then on few hands were raised in the auction houses of New York, and the telephones stayed silent. According to conservative estimates, the three sales of impressionist and modern works should have turned over USD 240 million, but collectors sat on their hands and spent a paltry USD 156 million. It had been more than six years since the three major auctioneers had posted such dismal results.

So, will we now see the crisis spreading to the world’s other big trading centres? Taking a global view, Europe is doing well. Sales here are up 10% against 2001 in the first three quarters. The main beneficiaries have been France, helped by the auction-house reforms of 2001, and the UK, increasingly concentrating on the top end of the range.

In the medium term, the shared passion that guides collectors and the intrinsic value of works of art will reassert themselves as the guarantors of stability in one of the world’s oldest markets. In contrast with the volatile stock markets, art remains a safe haven.