Art market alert II: A string of black Septembers

First volumes slumped and then prices. For the third consecutive year, September 2003 has brought a crisis. But unlike previous years, this one seems here to stay. Can the market still recover?

Ben 2003 The market rocks in 2001

The first September crisis to rock the market hit in 2001, after the drama of 11 September. After five years of an almost unbroken upward trend, the Artprice Index marked a lull. In September 2001 the index fell 5.4% below September 2000 levels, but with catalogues full the market was not yet in a mood to worry. No one wanted to relive the nightmare of 1991 when the steam went out of the eighties market. Collectors and dealers, who were confident in the market’s strength, shrugged off the unfavourable economic climate and were quickly back in the auction rooms as soon as the New York season began. Bidding remained brisk and prices rose by 3% over the year. And yet for the first time in 6 years, turnover fell…

The market dips in 2002

During the stock market crash of 2002, art works were increasingly seen as safe investments to such a degree that investors started to hang onto their “art assets”. The number of lots up for auction fell 15% in a year. The shortage of artworks fuelled high prices for the first season. But by September 2002, afflicted by an incessant economic crisis, an uncertain stock market and the baleful influence of a grieving US already beginning to contemplate war in Iraq, the art market, too, began to take on a sombre tone. Concerned art collectors became cautious and selective and were slow to bid at auction. Figures were disastrous. Since September 2001, lots sold had fallen 47%, no-sales ratios reached 44% and prices tumbled to 1999 levels. New York was the hardest-hit of the main art centres. But the European auction houses seemed to hold up well. France continued to enjoy the effects of the auction reform and London was stealing market share from New York.

In October-November, with an upturn in the stock markets and a cluster of important and attractive auctions, the passion that always drives art collectors broke out again and prices started to climb once more. The price index eventually posted a 4.3% rise for 2002 as a whole. The collapse in Q3 2002 looked to be no more than a wake-up call.

  The market slides in 2003

A wake-up call, though, can quickly turn into a distress signal.

Once again, prices in September have been down on six months ago after a 7% decline in Q3. But will they recover as quickly as they have done in the past? Unlikely.

For one thing, this time the decline came from within the art market. Unlike previous jolts, there were no obvious geopolitical or economic events to interfere with its smooth running. The current collapse is deep and structural: a decline in lots sold, lack of investor confidence, auction houses struggling to fill their catalogues, etc.

For another, the emerging crisis seems to be on an international scale. When the US market lost 28 points of market share between the first half of 1999 and the first half of 2002, it seemed to suggest America was bearing the weight of this crisis on its own. But don’t be deceived, it is spreading to Europe. Catalogues for auctions scheduled in France, Germany and the UK are already becoming scarcer.

The low number of lots sold is paralysing the market. And worse still, the slump in sales is forcing galleries and artists to sell works at any price, simply to cover their costs. Now that reserve prices no longer underpin the market, high bidding becomes a luxury investors cannot afford. This has left the market locked into a spiral of crisis which is being driven by a lack of liquidity.