Source: The New York Times (www.nytimes.com), by Robin Pogrebin
The fall art auctions are almost three months away, galleries are still in their summer hiatus, and the Dow keeps fluctuating. But the art world is wondering how volatile financial markets might affect its own specialized market. What will happen at the major art auctions in November? Will collectors pull back on buying sprees until the mortgage lending industry stabilizes? Will sellers decline to consign their art, assuming that the run of record prices in recent years is due for a reversal? Or will they rush to sell now, fearing that by spring prices will be lower?
“There is a potential for a very big change here,” said Maxwell L. Anderson, a former director of the Whitney Museum of American Art who recently became director of the Indianapolis Museum of Art. “If there is a short-term flood of the market with attempted sales of works, which then depresses the value of works that are available, the unhappy effect is it creates a general dampening of enthusiasm for buying art.”
Eli Broad, the billionaire Los Angeles collector, predicts that troubles in the subprime mortgage market will rein in recent astounding levels of spending.
“We’ve seen an unprecedented appreciation of contemporary art in the 35 years that I’ve been collecting,” he said. “We’re bound to have a correction. I don’t know if it will happen at the November auctions, or it will happen next May.”
Back in June, soaring prices had prompted Mr. Broad to predict that the art market could be headed for a downturn like the one in the 1990s. And these days he remains wary. “I’m not sure we’ve seen the worst yet,” he said.
The auction houses, unsurprisingly, present a more optimistic reading and say that art sales do not always follow economic cycles. “These kinds of assets don’t tend to react — in the past — on a week-to-week basis to market volatility,” said William F. Ruprecht, Sotheby’s chief executive. “If we go into a broad recessionary environment, undoubtedly that has an implication. But in the short to medium term, I believe there will be continued strong demand from all over the world for great works of art.”
Although it is in their interest to be bullish, the auction executives can point to recent history to support their position. The 1987 stock market crash was followed by a two-year acceleration in the art market, Mr. Ruprecht noted, adding that a similar upswing came after the 1998 economic downturn.
The Doyle New York auction house even achieved record sales after the crash of 1987. In 1989 a Chardin still life sold there for $2.5 million, then the highest auction price for an 18th-century painting, and a Rembrandt print fetched a record $990,000.
“Over the last 20 years, the market has dropped a little and come roaring back,” said Elaine Banks Stainton, the executive director of Doyle’s paintings and drawings department.
Michael Moses, who helped create the Mei/Moses Fine Art Index of prices, said the art market tended to follow the financial market by six months to a year. “We do have this historical phenomenon of the art market lagging behind the stock market,” he said. “It requires substantial change in wealth for a long period of time before people decide to change their investment decisions.”
“When the big sales come along in November and December,” he added, “the stock markets might be doing something totally different. Art is a much slower-moving market only because it doesn’t trade that often.”
While some buyers may drop out, auction house executives say, others will step in: the pool of potential buyers has increased as collectors grow more diverse.
“The art market today feels as if it is substantially more global, with substantially broader groups of people — with different sources of wealth, with different perspectives on volatility,” Mr. Ruprecht said. “You’ve got entrepreneurial wealth, you’ve got Asian wealth, Russian wealth, Middle Eastern wealth, petroleum wealth, financial wealth — all, in many cases, competing for a common group of things.”
The most competitive categories are contemporary, Modern, Impressionist, old masters and 19th-century paintings. But others areas, notably Asian art, are emerging.
“For every downside, there are always opportunities on the other side,” said Kathleen M. Doyle, chairwoman of Doyle, which will hold its first sale of contemporary Chinese art in the fall.
Marc Porter, the president of Christie’s, sees about 30 to 40 different markets, each with its own loyal or growing constituency. “Old masters, American paintings and Latin American paintings are not necessarily moving in the same direction,” he said. “It’s broadly cyclical and not directly tied to the stock or real estate market.”
Because consignments for the November sales are still being negotiated — along with the guarantees that can promise a seller an undisclosed minimum, regardless of the auction’s outcome — it may be too soon to make comparisons with last year’s fall sales. But Sotheby’s reports that its consignments so far are running ahead of last year’s.
One source of consignments — estates — largely remains constant, however. “People don’t necessarily die in sync with the financial market,” Ms. Doyle said.
Aby Rosen, the Manhattan real estate developer and art collector, predicts that if buyers or prices do fall off, they will drop only slightly. Instead of buying two paintings at $500,000 each, he explained, a collector might buy 10 paintings at $10,000, or 5 at $20,000 each.
“Rather than five people bidding for the same painting, it will be three people,” Mr. Rosen said. “Instead of making threefold on a sale, sellers will make two-and-a-half fold.”
What many who make their living in the art market are counting on is that there will always be people who use art to telegraph their wealth, along with expensive cars, houses and jewelry.
“The sense that buying art is important, vital, cool, accessible, sexy is not going away,” said Lucille Blair, an art consultant for collectors.
But art has also become an asset with an intrinsic and lasting value. “It’s one of the only asset classes that’s not leveraged at all, so that a Warhol hanging in somebody’s house truly represents a million dollars in capital,” Mr. Porter of Christie’s said. “There may be years when it’s worth less, or years when it’s worth more. It’s real, it’s tangible and it doesn’t have a whiff of a derivative product about it.”
Others concede that it is too early to make predictions. “Nobody really knows what’s going to happen in the financial markets,” said the developer Jerry I. Speyer, chairman of the Museum of Modern Art and himself a collector. “In my experience, people buy the best of whatever they can buy, if they can afford to buy.”