Notwithstanding a recent headline-making sale of a painting for more than US$100 million, the art market bubble has finally burst says Professor Roman Kräussl from the Luxembourg School of Finance at the University of Luxembourg whose research shows that the price for post-war and contemporary art fell by 21% in 2016, confirming his warning of an overheating market.
“The speculative bubble has burst,” said Professor Kräussl, an expert on alternative investments. Between 2009 and 2015, prices for post-war and contemporary art had more than doubled and climbed far above their long-term price trend.
Previous research published by Professor Kräussl warned that the art market showed signs of overheating following his analysis of more than one million auction records covering six major art styles over the past 36 years. Professor Kräussl and his team identified a trend similar to previous speculative bubbles in the 1990s and in 2008/09.
Total auction sales for fine art declined by 29% in 2016, even though a larger number of paintings were sold than during the previous year. The average price per work dropped from US$160,000 to US$108,000. Even paintings by leading artists such as Francis Bacon, Mark Rothko and Roy Liechtenstein suffered a 20% fall in prices. Most other art market segments, from Impressionist to modern art to the Old Masters, also witnessed a strong decline in price.
“2016 was the year the art market crashed,” said Professor Kräussl, adding that, “prices near their long-term trend suggest that there should be a recovery of the art market in 2017”.
Indeed, Jean-Michel Basquiat’s painting “Untitled” (1982) sold for US$110.5 million at Sotheby’s in New York this May, breaking the artist’s previous US$57.3 million auction record.
Media reports of a recovery of the art market, however, are premature, according to Kräussl.
“Several high-value art works were withdrawn from auction last minute due to a risk of failure to sell,” he explained. Recovery from last year’s correction in the market might be underway but returns in art as an investment should remain flat for the time being. “You should buy a Basquiat if you like looking at it,” Kräussl concluded, “but not solely as a strategy for wealth creation.”
The manager magazine global art market index is based on over five million sales data by more than 700 auction houses. In comparison, Sotheby’s Mei Moses art index consists of only 45,000 data points. Other art market reports contain hardly any price data and are based partly on non-verifiable survey data given by gallerists. For example, the TEFAF Art Market Report stated a price decline of 8.6 percent for the whole art market for 2016, but claimed a price increase in the post-war and contemporary art categories by 4%. This contradicts the observed decline in publicly reported auction prices.
