What Could a Double-Dip Recession Mean For the Art Market?

Noah Horowitz is a faculty member at the Sotheby’s Institute of Art, the director of VIP Art Fair and most

Noah Horowitz is a faculty member at the Sotheby’s Institute of Art, the director of VIP Art Fair and most recently the author of the art market book Art of the Deal. We called him yesterday to see what a double-dip recession might mean for the art market.


The impression that I got from your book was that in times of instability the art market and art mutual funds and things of that nature have the potential to be stronger than ever because they’re so consistently used as hedge. Do I have that right?

I think that that’s a correct statement. With the volatility of the stock market, with the S&P downgrade of the U.S. debt, the price of gold has shot up over the last few weeks as well. So art playing a similar role, as a durable good, is attractive to people in times like this.

Explain to me, then, the basic circumstances in which art does decrease in value.

Art follows wealth. If we see a decrease in wealth levels of the elite, that’s one way to gauge how art will be valued.

I think what you see — and you saw it a little bit in the latter half of 2008 and for most of 2009 is that there’s just a huge liquidity crunch, that nobody wants to put works to market. The values in turn decline because there are no places to easily sell and move things and the broader markets dry up. I think that that certainly could play out over the next year to two years, depending on how things go, but again I think that is hinging on foreign buyers and areas like far east Asia, and the Middle East — places that are perhaps a bit more insulated from what’s happening in Europe and the U.S. right now. The ability of the market to sustain itself over the next few years may well rest on the shoulders of a whole new range of buyers from some of these areas, which have been very active in the market over the last 24 months.

As with a lot of these things, it’s about perception, and if buyers are afraid of their work being devalued by going unsold, especially at auction, the market could have another dip in it.

But those conditions would probably have to be a little more extreme than the market fluctuations we’ve seen surrounding the S&P downgrade?

Sure. That’s not an immediate thing. But if we move into the fall and there’s easing in the main stock markets in the U.S. and western Europe, that could potentially beset a second wave of trepidation in the art market, where people have bigger fish to fry, in some sense, and they’re just a bit worried about what happens when they put things up.

If we start seeing a season or so of softer auction sales, that can in turn set off a chain of potential negativity. But I should counter that by saying we’re not they’re yet. I think that what’s happened over the last few weeks potentially sets the stage for a lot of people to be looking out to see what happens in the fall.

Is there anything else that people should look out for in terms of indicators as to how the art market will fare heading into the fall?

The U.S. political climate. Possibly the price of gold. And also the health of financial markets in places like Asia, places where everybody’s turning right now.

Are certain areas of the art market more resistant to this kind of fluctuation?

I think there’s been such a huge rise in the number of young artists being sold and speculated on — that if any part of the market were to potentially see some softening, my very subjective guess would be that it would be there more than it would be with the Old Master paintings, where there’s a much thinner supply. And this is one of the reasons that people would look to put a certain amount of money in assets like this: the really big pieces have tended to sell in even difficult environments. I think very tried and true works with very strong provenance are certainly capable of selling, if they have to, in a more difficult environment. At a very broad level, younger, less-tested contemporary art could undergo some sort of a contraction simply because there’s been a huge glut of supply and values there are inherently less ascribed, less certain.

A lot of times they are contingent on the work of a few dealers and collectors that are actively buying and selling these things and if that for some reason dries up you could see an easing there. It’s not for nothing that Damien Hirst’s own market has, after his famous sale at Sotheby’s in September 2008, gone pretty quiet. There was a period leading up to that where all of the auction houses and galleries were full of his material, and that was the end of it. And Gagosian right now is trying this big strategy this next year by putting a lot of his spot paintings on the market. People will look to that, I think, looking at Hirst as a sort of bellwether of the market.

Is there anything we should be watching for from other galleries?

Gagosian is a very specific event; that’s not a generalized thing. There will be a lot of focus on the performance of FIAC and Frieze in October, and then the major contemporary, Impressionist, and modern sales in October and November will be a big barometer. And if there is more volatility in the financial markets, and those fairs are not perceived to have been as strong as one might think, then there could be a wave of more easing up in the markets. So I think the big fairs in the fall will be what people use as an initial barometer.

The Asian markets seem to have been a little more insulated from this. Could this also be an opportunity for them?

I think that in the 2009 period there were a number of examples of very savvy dealers and collectors buying up work at auction and privately at severely suppressed prices. That was happening mostly with Western dealers and collectors, but you could certainly imagine an opportunity for wealthy Asian collectors, if there is an easing over the next say twelve to thirty six month and using that as a way to build up serious collections and at “deflated” prices.

I think the general thing about Asia that remains to be seen is how deep the markets are. Right now there’s quite a number of collectors and people at some galleries had very positive experiences at the Hong Kong Fair in May. That story wasn’t uniform in that it wasn’t quite there yet. I think there’s a lot of room to grow still, and a lot of untapped potential.

So you think certain people might be considering this strategy, given the lessons of 2008?

I think the key word is “certain.” I think that very savvy knowledgeable people might be thinking in this way, and they, possibly over the longer term, could be well placed to do it. I think the majority of people will inevitably will ride things out and only see things after the fact. I’m just saying I think some savvy people might look at it now. But like the financial markets, the art market could take a serious nosedive in the next twelve months, and you could be seen to have been overspending right now, at the top of things.

What Could a Double-Dip Recession Mean For the Art Market?