The Sky Is Falling?
We don’t need Chicken Little to tell us that prices are falling in the art and design markets. Recent results at the Phillips de Pury & Company, Sotheby’s and Christie’s art auctions, and the Wright and Sollo/Rago design auctions, will suffice. With some exceptions—a Gris painting here, an Eames surfboard table there—the results have been dismal, even grim. Buy-in rates of up to 50 percent have been reported, as have tallies equaling less than half of the low estimates. We do not need Ben Bernacke to tell us that it is unrealistic to expect works of art to be immune to market forces. Marc Porter, president of Christie’s in America, said just that earlier this month in an article in The New York Times, as did Richard Wright, of Wright Auction, in a conversation I had with him the week before.
Assets are assets, whether they are stocks, gold, oil, paintings, or chairs, so it is not surprising that a downward re-valuation is occurring in the art and design fields as the global economy sputters. What is surprising, as Richard Wright noted, is how fast the correction is taking place. In previous downturns (2001, 1987), there was a lag of up to several years for the pain to be felt in the art market. Now, the art and design markets are in lockstep with the broader economy, and are in something of a freefall since the demise of Lehman Brothers in September. Sotheby’s has reported recent losses of $15 million—and rising—on guarantees given months ago (in what is now a halcyon economic period), echoing the fallout involving risk exposure in the financial sector. As with the equity markets, there will be winners and losers in the art and design fields, but a shakeout is clearly underway.
Francis Bacon, self-portrait, unsold at Christie’s; Natzler vase, cover lot at Sollo-Rago, unsold
Nobody has a crystal ball, but Richard Wright and John Sollo (of Sollo/Rago) do have insight into the market for modern design. Both see a need to recalibrate prices to reflect market realities during what could be a protracted economic downturn. Tangibly, this means lowering reserves across the board, and downgrading sellers’ expectations accordingly. Wright thinks reserves may have to be set “wildly” lower to get property to sell; he senses that values may fall upwards of fifty percent. Still, he thinks it will be healthier for the market to maintain liquidity rather than support previous price levels. And, when something sells low, a buyer gets a bargain. This is the flip side of the coin—pain for sellers translates to opportunities for buyers.
It remains to be seen whether A-plus material will continue to flow to the design auctions over the next months. Wright thinks it will, in part because design dealers and collectors are not as well capitalized as art dealers and collectors, and may need to sell. Sollo is not so sure. Clearly, this will be an interesting period to watch. Both Wright and Sollo know that change is coming to our part of the world, but neither is unduly pessimistic. Investors of all sorts may be sitting on their hands now, but it is still more comfortable to sit on a chair.
Chicken Little image courtesy of Walt Disney Pictures.