How to Make Sense of What Just Happened

Perhaps the most nervously anticipated two weeks in art market history are now over. The art press has spent the last two weeks during the all-important Impressionist and Modern/Contemporary sale cycle reporting the big story: the art market has come up short.

In a moment of rapid, worldwide asset deflation–where no sector or economy has proved a safe haven–art prices have dropped dramatically. Save a few isolated cases of exceptional works by artists still in the middle of a long-term secular rise in value, the vast majority of works were sold at levels below their pre-sale estimates.

For the press, this is evidence that the art market is not “de-coupled” from the real economy. Some have reported this as a matter of fact; others  reported it with relish. (The odd one has decided that there’s a conspiracy to mask the bad results by not reporting hammer prices.)

In the post-sale press conferences, several struggled to make sense of the fact that the auctioneers seemed genuinely relieved and, at times, giddy. That’s because while the press focused on the estimates, the auction houses were looking at their guarantees. Though both houses took a severe beating these past two weeks (Sotheby’s wrote off $27 million in guarantees; Christie’s doesn’t report them but certainly took a similar number), the state of fear surrounding the world economy had given them visions of armageddon.

Here’s how Carol Vogel described the situation before the sale:

The big question is who will be buying this expensive art. With hedge-fund traders, Russian oligarchs and wealthy Middle Easterners having taken a hit in the financial markets, the auction houses, whistling in the dark, are hoping for a return of old money. [emphasis ours]

This time it wasn’t hyperbole. The people at the auction houses were very nervous in the days before November 3rd. Like the hedge funds and investment banks a few weeks before (and again on Thursday), the auction houses were staring into the abyss before the sales began. Now they’re bruised but know what they have to deal with.

So where the press reports generally shake their head and point up the fact that the sales did not come near the estimates, the experts at the auction houses marvel that anyone would buy art at all in this climate. And they take heart from that fact.

Part of the confusion comes from the way estimates have turned into a fixation. When you buy something at a retail store, you accept the fact of the price tag. But you also know that stores have sales. And if you think something is overpriced, you come back a few weeks later hoping to find it a more attractive price.

When the press reports that holiday discounting has begun very early this year to encourage sales, we take it in course. We all know that consumers have heavy debt loads and good reason to husband their cash in the near term. The news is cause for concern but no one writes stories about the death of the mall.

When we move out of retail, even high-end luxury goods, into the realm of significant purchases like cars and homes, everyone accepts that prices are the starting point for a negotiation. The hot car has a waiting list at some dealers and price above the sticker at others. On the other side, cars get 0% financing or gimmicks like free gas as incentives that reduce the sticker price or even flat out rebates.

With houses, as we all know, asking prices range from fantastic aspirations to cleverly laid honey traps designed to get buyers so attached to a home that a bidding war breaks out.

Art is no different. These are auctions after all. Though we’ve grown jaded and expect every lot to soar far above the high estimate, auctions are inherently dramatic because of the potential for failure. There’s a lot on the line. This season’s sales seemed more like a game of chicken where some lots sold for whatever they could attract and others came tantalizingly close to a reserve price established during better days–only to be bought in.

No matter. It’s the consignor’s right to take the work back. With many of the guaranteed works, the auction houses have some reason to hope that a better deal is only a few years down the road.

But, for now, it’s all about relief. Soon the real hard work will begin. This auction cycle gave the art world some pricing information. But until the world financial system reaches some stability there’s no telling if it won’t be revised downward again. At least next time, those guarantees won’t be hanging over everyone’s heads, we hope.