The Art Bubble

Newsweek has an interesting article on the art market. It looks on the current contemporary art scene as a bubble which will soon lose its air.  One sign of an art bubble is when collectors are attracted to the market due to high prices instead of passing on the opportunities.  Another comment was that it is a market, and markets naturally go up.....and down.  Other signs include new collectors entering the market, after the pros and insiders have already bought.

Overall a very interesting article and well worth reading by appraisers.

Newsweek reports

Maybe we should expect obscene price tags when it comes to the proven icons of art history: who can say if The Scream by Munch was overpriced or not when it sold for $120 million last May, or whether it made sense when The Card Players by Cézanne sold for twice that in 2011? But when prices go nuts for artists whose reputations are still in play, trouble is sure to be looming.

The reason I’m certain that today’s contemporary market is due to deflate is because people like me will make it happen. We won’t do it on purpose, tempting as that might be. We’ll make the bubble pop in the normal course of things, as all of us—critics, curators, and art lovers of all kinds—decide that today’s market darlings are tomorrow’s 
also-rans. We’ll prick the market’s bubble by deciding that a Richard Prince nurse is about as central to our culture as Ernie Trova’s sculptures turned out to be. And when we burst reputations, we deflate prices, too. History proves that most judgments about art will be shown to be wrong, as the roster of noteworthy talents gets whittled down. (I’m utterly sure of the importance of the living artists I admire—including Koons and Hirst, as it happens. I’m equally sure that I’ll turn out to be mistaken about many of them.)

The scholar Michael Moses, now retired from the NYU business school, has spent years building an index that tracks the prices of artworks sold at major auctions—of the art, that is, already on top of the heap. (Auction houses won’t even accept lesser works, which include most art that gets made.) And Moses points out that, over the long run and on average, even this high-end art tends be a worse investment than equities, however well some of it has done over the past year or two. His index tracks single works that have come up for auction a second time, and of those “sale pairs,” about one third actually represent a drop. In the long run, Moses says, the fancy, flashy treasures whose sales the auctioneers trumpet most loudly don’t yield the best returns. 
Moses points out that to match a normal 10-year stock-market return, today’s $80 million Rothko would have to soar to an unlikely $160 million.

In New York this November, the auctions of deluxe modern and contemporary art set tons of artists’ records, with about $800 million in total sales. (Older works, meanwhile, didn’t do very well, and the market was soft for mid-range contemporary pieces.) But the success of those auctions doesn’t mean we were witnessing smart investors at work, or anyone’s great nose for future art history. The high prices were probably a sign of overheating and “trophy purchasing,” says Moses—
they were about people spending tons of money, because they wanted to.

Source: Newsweek