How Did the 2008 Crisis Affect the Contemporary Art Market - Essay Example

How did the 2008 crisis affect the contemporary art market? Introduction Over the last one hundred year, the art market has experienced unprecedented growth. However, this growth is not a general trend. During the early years of the 20th Century, artist survived on the meager support of patrons and collectors (Hernando 2012, p 273). This situation changed a century later, leading to the sale and purchase of art is happening at the international level, and the turnover has greatly increasing. This growth has not been linear, as it has been affected by economic disruptions and other variations such as cultural, legal, social, financial, and fiscal factors. The last hundred years have witnessed a myriad of economic and financial milestones, which have greatly affected the art market. For instance, the 1929 great depression greatly affected the prices and sales of artwork, a decrease that was reflected in records of major art auction houses such as Christies and Sotheby’s (Artprice 2009, p 83). This section address the question of how recession, particularly, the 2008 crisis, affect the prices and sales of art or the art market. It also considers the fundamental question of whether or not, art auctions, art fairs and galleries, are influenced by a crash in the stock market. In simpler terms, it is concerned with evaluating the relationship, if any, between economy and art. Discussion Pre 2008 economic crisis Between 2004 and 2007, the prices of art work in the United States grew by 67% while the annual average rate of return was at about 11%, which is according to the Mei Moses Art Index. For instance, in 2006, Adele Bloch, a piece by Klimt Gustav was sold privately for $135 million. Interest in modern and contemporary art grew with the growth being driven by the advent of new art galleries and art fairs all over the world, for instance, Art Dubai, CIRCA Puerto Rico, and Art Shanghai. The 2008 Economic Crisis The art market will remember the 2008 economic crisis as a turning point for the market which began in a mood that was somewhat speculative and euphoric in nature, and ended in violent contraction. The multi-million dollars witness in the first quarter of 2008 was followed by extreme buyers’ wariness resulting in the art market being a casualty of the financial and economic crisis. The market had for seven straight years witnessed a steady rise in art prices and sales. However, this trend experienced a radical change in 2008 as a result of the spread of the financial and economic crisis into internal markets (Evans 2008, p 30). In the first quarter of 2008, the prices of art contracted by about 8% when compared to the last quarter of 2007. Apparently, this was the deepest contraction on the art market since the economic and financial crisis of 1991. The question of whether the market turmoil and blues, which extended into the mid-1990s after the 1991-1992 meltdowns, could be witnessed or be expected arises. Of course, a lot of things have changed if the 1990 peak is compared to the peak witnessed in 2007. During the 1990 peak, Asian collectors and banks who delved more on modern and expressionist works, dominated the top tier of the market. This resulted in the rise in prices of even artwork that were of lower quality. The market however, lost its appetite all of a sudden which in fact resulted in the buy-in rate of the market reaching the 25% mark. With the emergence of new wealthy collectors from Eastern Europe, Asia, and the Middle East since the 2000s, the art market has witnessed a more global form of demand. This resulted in the number of arts taken into auctions rising by more than 45%. This was in order to meet the new frenetic demand for contemporary and modern art (Artprice 2009, p 18). The increase in demand also saw buyers and collectors becoming more selective. This is shown in the continuous increase in buy-in rate which hovered around 35% since the start of the millennia. The market has since 2008 experienced deep recession, which was as a result of the economic and financial crisis, despite the fact that prior to the crisis; the market had been experiencing an upward trend. By the end of 2008, the global art auction sales value amounted to $8 billion; however, this figure was 1 billion less than the 2007 figures. Compared to prior figures, years earlier than 2007, this figure is somewhat exceptional. For instance, the average annual art sales values between 2000 and 2006 ranged somewhere between $2.5 million and $4.2 million. In fact, in 2007, the speculative bubble reached its peak, which was driven by more than 1,200 adjudications just over the $1 million level. The hammer, however, fell in 2008, 1,100 times over the $1 million level (Saltz 2008, p 220). The deterioration of the world’s economy generated an electric atmosphere in May 2008 at the opening of the sales of Christie’s and Sotheby’s, the art market’s heavy weights. Christie’s and Sotheby’s modern and contemporary , impressionists and post-war art catalogues had very high estimates which were in line with competitive prices that were obtained in late 2007. The top-end of the art market, just a bout at the end of a week full of tensions, seemed albeit more insusceptible to the deflationary spiral that was affecting the stock market at the time (Evans 2008, p 95). It recorded the entry of 31 new artists and record revenue of $1.2 billion. European buyers enjoyed an added advantage to participate and play a part in sales, because of the weakening of the dollar against the Euro. In fact, they chopped or generated more than 40% of the revenue collected especially from modern art works and impressionists on 6th and 7th may. The speculation in the contemporary and post war art sales collected more than $77 million on 14th May from the sale of Tryptych to Russian Billionaire, Roman Abramovitch by Francis Bacon at Sotheby’s(Boroff 2008). In fact, on the day before, the billionaire had also paid $30 million for his Benefits Supervisor Sleeping. Other exceptional and notable art sales during this period included the sale at Christies of Claude Monet’s Le Pont du chemin de ferà Argenteuilfor $37 million. Etude pour la femme en bleuby Fernand Léger’s was also sold for approximately $35 million. It is important to note that the price paid for the Triptych was the highest in art auction since 2006. The first halves of 2008 saw the overall annual revenue from art auction reach $5.5 billion, which in itself, was a record for a half-year revenue. However, this fell back to $2.75 billion in between July and December in 2008 as all other market indicators turned red after September. As reflected by AMCI, Art auctions began to fail, prices plummeted and market confidence vanished. It is reported that by end of 2008, the overall art price index indicated a sever contraction in prices by close to -30%. It is worth noting that the price correction that happened during the 1991 economic crisis was less sharp, just about -21%. However, this was later followed by another contraction in 1992 of -27% (Artprice 2009, p 205). Galleries and Art fairs in the primary art market recorded a decline, not only in the sales volume, but also in the number of visitors. The deterioration in the world economy as well as the collapse of American and European stock markets pushed the global art market to a downward spiral, especially in the second half period of 2008. In 2009, the trend witnessed in 2008 continued and the art price index showed a 10% contraction with international art market prices shrinking to the levels witnessed in 2005. The price of art have however been slowly accelerating in 2010 with some exceptional sales such as the $103.78 million sale of Giacometti’s L’homme qui marche at the Sotheby’s and the $106.4 million sale of and Picasso’s Nude, Green Leaves and Bust at Christie’s. The confidence of collectors in the market shows some sort of optimism (Saltz 2008, p 62). Sotheby’s and Christie’s The financial and economic crisis adversely affected the sales revenues of major art auction houses, particularly Sotheby and Christie’s. Sotheby’s, for instance arrived with annual total revenue of $3 billion, which was about $400 million ahead of its major rival, Christie’s. Together, Sotheby’s and Christie’s both generated 73% of world’s Art auction income, from a meager 16% of the world’s art transactions. Both the auction houses together account for more than 85% of the top end of the art market; in fact, of the 1064 art sales in 2008, they adjudicated 929 over the million-dollar line. The two dominated the global market from the 67 first positions of the 2008 ranking of top auction sales. In 2008, Sotheby’s surpassed Christie’s when it began to focus on contemporary and modern art. It departed from the conventional auction calendar and began presenting its modern and impressionist sales and its contemporary and post-war art in the same week. For instance, it presented its contemporary art sales in London three weeks after Christie’s has presented its, this led into Sotheby’s generating $165 million in sales compared to Christie’s $127 million in sales. A powerful new tool referred to as AMCI-Art Market Confidence Index was launched in 2008; the objective of this tool was to offer clients with real time trend appreciation and opinions on the art market. In 2008, AMCI showed a very close correlation between stock market prices and art market prices. Throughout 2008, AMCI fluctuated, these reflected in the sale and purchase intentions, as well as in the mood and the forecasts of art market players throughout the world. This was in a reaction to events in the world including the economic crisis, stock market fluctuations, geo-political events, as well as high end profile auctions. The initial signs of stock market meltdown in 2008 resulted into a negative AMCI; this is because respondents expected the economic crisis to spread into the art market. From the buoyant sales results of February and March 2008, the AMCI returned onto the positive ground. Even though art prices generally contracted by 7% over the first quarter of 2008, as well as the volatile stock market, art maintained its status and still remained in the clear by the end of the first quarter. Conclusion This paper has attempted to address the question of how recession, particularly, the 2008 crisis, affected the prices and sales of art or the art market. It also considered the fundamental question of whether or not, art auctions, art fairs and galleries, are influenced by a crash in the stock market. In simpler terms, it is concerned with evaluating the relationship, if any, between economy and art. It has enabled us to compare and analyze the sales results prior the crisis, during the crisis and after the crisis. Based on this discussion, it is clear that the growth in the art market over the past hundred years has not been linear. This has been affected by economic disruptions and other variations such as cultural, legal, social, financial and fiscal factors. we have also seen that the sales volumes or revenue of art at auction houses, and visits by collectors at art fairs and galleries have reached peak prior to the economic crisis, reduced or contracted during the economic crisis, and slowly recovered post the crisis. We can thus conclude that the prices and sales of art or the art market is affected by the economic crisis; art auctions, art fairs and galleries, are influenced by a crash in the stock market. APENDICES Appendix I: Worldwide Art Auction Sales turnover - Biannual growth between 1990 and 2008 (Source: Artprice 2009) Figure 1: Worldwide Art Auction Sales turnover - Biannual growth between 1990 and 2008 (Source: Artprice 2009) Appendix II: Worldwide Art bought-in rate (2008 Monthly data) (Source: Artprice 2009) Figure 2: Worldwide Art bought-in rate (2008 Monthly data) (Source: Artprice 2009) Appendix III: Figure 3: Breakdown of auctions by auction houses (Source: (Artprice 2009) Figure 4: Breakdown of auctions by auction houses (Source: (Artprice 2009) Appendix IV: AMCI by Artprice.com (Artprice 2009, p.14) Bibliography Artprice, 2009. Art market trends 2008, New York. Boroff, P., 2008. Sotheby’s Says It Lost $10.6 Million More From Art Guarantees. Bloomberg Businessweek. Available at: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aXoQ.ssuc0Lo&refer=muse [Accessed March 27, 2014]. Evans, S., 2008. Financial Crisis Cools Down Art Market. Forbes Magazine. Available at: http://www.forbes.com/2008/10/31/christies-sothebys-frieze-pf-art-in_se_1031artmarket_inl.html. Hernando, E., 2012. Art Market Crisis ? ArtPulse Magazine. Available at: http://artpulsemagazine.com/art-market-crisis. Saltz, J., 2008. Frieze After the Freeze. New York Art. Available at: http://nymag.com/arts/art/features/51525/.  Read More