Art-рынок in times of crisis. Part 2: Depression
ARTinvestment.RU   25 марта 2020

AI continues to understand the indicators of the art market during economic crises

the First part of the article can be read here.

Before analyzing the impact of economic crises on the art market, we believe it is necessary to refresh the reader's Glossary. Any crisis is divided into the following periods: the recession (market decline), depression (full stop processes without moving the market), growth (an inevitable process, no matter how want to return to some pessimistic media) and stagnation (relatively steady market in the period between the peak and the beginning of a new recession — without widespread panic, but without innovation and growth). As a rule, economic crises shake our world every 10-15 years.

Pay attention to the terminology associated with the art market: this material will continue to meet two excellent from each other the concept of — sales (the sum of all transactions for a certain period, usually a year) and , price dynamics (change in the average cost of works of a single artist in a certain period of time). Why is it important not to confuse these two concepts, you will understand below.

Data collected The Sotheby's Mei Moses Indices for the periods 27 economic crises between 1875 and 2001, show a General pattern:

• during the recession (the fall of the common market) was the capital outflow from the market of art, which affected sales — on average, they reduced by 20% from peak pre-crisis levels;
• the art-рынок and showed negative the price dynamics: the average cost of all best-selling artists in the period of recession was decreased by an average of 0.7 %
• changes in price dynamics and sales volumes was not apparent until the second year of the crisis;
• after a period of depression, followed by the growth of the overall market, followed by recovery and indicators of the art market — in 90% of cases exceeding pre-crisis sales volumes.

the sum of the individual deals with the art was unpredictable even in the midst of crisis. For example, during the recessions of 1960-1961, 1980 and 1981-1982 reduction in average cost of work in any of the segments of art were not observed. In 1960-1961 significantly increased average prices for works by old masters, in 1980, rose three of the major auction segments (old masters, impressionist and modern and postwar American art), in 1981-1982 average rose art of the Impressionists. The recession of markets with switching to depression is not superimposed on the world war, but was often accompanied by local wars. Thus, economic crises that occurred during the Vietnam war and the conflict in the Persian Gulf, caused a decline in average prices for art at an average 20 % in 1973-1975 and 1990-1991, respectively.

is Not superfluous recall that the formation of the art market in the modern form was facilitated by the crisis of the American economy 1981-1982 who switch over the attention of investors from the stock market to alternative long-term assets, primarily art objects. In turn, the interest in art has provoked the study of it as a financial tool appeared Artprice and the first price indexes. At the same time, the U.S. government adopted amendments to the law on philanthropic activities, making it more attractive charity in the field of culture and art.

the Fall in global financial markets that began in 2007 has not significantly affected the sales of art until 2009, when the most expensive segment there was a sharp reduction in the number of acquired art objects. This once again confirms the backlog of art-рынка from the stock markets by 6-18 months. The volume of sales has not decreased everywhere — for example, in February 2009 the collection of Yves Saint-Лорана was sold for $483.8 million, a record at the time for transactions with the private collection of the amount. In General, the volume of auction sales in 2009 declined from $32.9 billion (2007) to $18.3 billion — by 2011 already recovered, surpassing the mark of $30 billion.

note that in 2009, when the art market was in decline, the S&P500 (reflecting the change in the value of the stock of the 500 largest public companies on the new-Йоркской stock exchange) have already begun to grow, having gone through a period of depression. However, the stock, unlike the art market, took two years to reach pre-crisis level of trade: the U.S. stock market stabilized only by 2013. According to The Sotheby's Mei Moses Indices from 2007 to 2009, the price indices of art (indicators of investment attractiveness, calculated on the basis of repeat sales of the same works@the semicolon refer to here) on the public market fell by about 27.2 %. Meanwhile, S&P 500 dropped by 57 % and reached 12-летнего lows in early March 2009. It is noteworthy that in the crisis of 2008-2010, the average prices in different segments of the art also fall unevenly: postwar and contemporary art fell by an average of 29.9 %, the Impressionists and modernists only 10.1 %.

an Interesting and strategy for auction houses in times of crisis. In 2007-2009 and 2016-2017 auctions refused the practice of put sellers in a waiting list and have focused on works which are not required from a prospective customer an additional exorbitant delivery costs and installation. In other words, he took to selling the most mobile and ergonomic art. In the second year of the crisis, the auction house significantly reduced the number of works offered at auction with an average estimate of over $10 million, — sales volume decreases, but the percentage of lots sold has been held near historical averages. By the way, between 2007 and 2008 the cost of stock house Sotheby's (which at the time was still a public company) fell by 83 % — evidence that the sellers in the art market can be affected not less than collector or investor.

What kind of art and to what extent affected by the economic crisis? First, refer to price ranges. The leaders in sustainability in the market in times of crisis facing the lots sold in a price range from $100 thousand to $1 million with Average prices for such work in 2009 dropped by only 1.5% and in 2016, on the contrary, increased by 0.3 %. Sales of art in the range of $100 thousand — $1 million also showed the smallest decline in 2009 and 2016 (despite the fact that the entire auction market fell by more than 20 % compared to the previous seasons). For example: in 2009, the number of transactions with art objects with a lower bound estimate of $1 million to $10 million decreased by almost 60 %, and over $10 million — 75%. A hybrid of the crisis of 2016 sales of art showed exactly the same results compared with price ranges.

Hence the second question: how the statistics correlate with the names of the artists? In other words, the range from $100 thousand to $1 million — is a darling Oscar Murillo or cheap Jean-Мишель Basquiat? Statistics shows that neither one nor the other. Most likely the market will be sold to a third type of artist — whose average prices have the most significant art of the time, ranging from one hundred thousand to one million. For example, the work of Andy Warhol in the seasons 2007-2009 best selling in the range of $1-5 million (19% of unsold lots), and the largest number of unsold lots (57 %) had a median estimate of $500 thousand (draw and less meaningful work). Sale of a painting by Gerhard Richter — in 2007 and the already acclaimed contemporary top-художника — was similar: 55% of unsold lots. In the following, 2008, the number of lots designed by a German abstractionist artificially reduced, in particular price segment over $1 million in three auction season, by the fall of 2010, the volume of public sales of works by Richter have already exceeded pre-crisis levels — $76,9 million.

However, the work of artists who are at the time of recession at the peak of the marketing promotion, the crisis has affected the smallest way. During 2008 and 2009 some of the best results in the auction market showed kinetic sculptures of Alexander Calder. During the 18 months of the crisis, slightly more than 50 % of the lots were sold to exceeding the estimate that made Calder one of the best "crisis" of the authors. Assume that many buyers had in mind the imminent opening of the Museum of the artist in Philadelphia, which was held in 2008 and force significantly increase the price. By the way, the construction of the Museum was frozen in connection with crisis and not resumed until now — perhaps, it again will remember in 2020, to accelerate sales.

a different situation is with living artists. The portal Artsy in 2018 held changes the capitalization of the world's top-художников — in other words, considered the total sales for each author on the auction. In confirmation of the above, in the period of crisis 2007-2009 place in the ranking of capitalization "Top-10 living artists" lost Richard Prince and Wayne Thiebaud, also significantly shaken the position of Damien Hirst. Their place in the top ten in the crisis took Jasper Johns and Christopher Wool — is more stable and less controversial. Over the next 10 years, by 2018, nor Prince, nor Thibault, the rating did not come back, followed by a rating left by Takashi Murakami and Frank Stella. Closest "to the exit" are all the same Damien Hirst the most expensive contemporary artist Jeff Koons. Meanwhile, the rating of capitalization lightning entered actively promoted David Hockney and Yayoi Kusama. How to show red toadstools Japanese artist in a crisis? Statistics say that they will have to wait for market recovery.

Final review AI: history of economic upheavals of the last 150 years shows that even rapid recession of the art market reacts with a delay. If after several months of decline begins a prolonged depression most collectors with high quality work will keep them until the next growth market. Those owners who will need cash flow to maintain core business, try to sell the art and are faced with two negative scenarios: on a private (gallery) market they will be offered a big discount, and on public their intentions will prevent the artificial regulation of the market. At the same time the auction house will artificially hold back the offer, knowing that the lesser of two evils — reduce sales and reduce the number of lots sold — they will make a choice in favor of the former. By reducing bids, usually remain relatively stable for the works of famous artists and those who were at the peak of a marketing promotion at the time of recession. Modern authors with a shorter history experience greater price volatility (literally: a strong deviation from the average prices in the direction of increase or decrease), which then may affect reputation build from-за negative balance of sold and unsold lots.

in Other words, in periods of economic crisis, the art market is not falling — falling purchasing power of most players. And drops at once: in the first year of the global crisis, the collectors with the money to buy the work of those whose nerves have passed one word "recession". The same sequence of market and recovering: first, the overall economic situation, and then the sales art (because it is not a necessity after the depression).

the Last group of factors affecting the art market, — war and political turbulence. In the final part of the article we will talk about them, and will also offer collectors, investors, art and artists, a number of recommendations how to behave in times of crisis.

Denys Belkevych, AI