A Look at the Art Market in 2015 and Art Market Returns

Forbes published an article where a European Fine Art Foundation report stated the art market saw its first drop in 2015 since 2012. According to the report the art market shrunk by 7% to $63.8 billion. Forbes also looked at an Artprice report showing art selling for over $100,000 was enjoying annual returns of 12% to 15%.

Forbes reports

A new report this week from European Fine Art Foundation showed that global art sales fell 7% last year to $63.8 billion, the first drop since 2012. Last month, index company Artprice reported that the value of global auction sales of art dropped to $16 billion, a 10.31% decrease from 2014, mostly because of the shrinking Chinese market, and there has been anecdotal evidence of falling sales at the most important auctions so far in 2016.

But what about art returns? During a talk at The Armory Show in New York last week, on the topic ‘How to Optimize the Unpredictable Art Market’, Andrea Danese, CEO of art lending company Athena Art Finance, sought to reassure the assembled audience of collectors.
 
Sure, the current volatility in the art market was a worry for many people, he said, but the long-term prognosis was good, because art selling for over $100,000 was achieving a rate of return of 12% to 15%. “I’m much more scared about buying stocks at this stage than I am about buying art,” he said.

But is a 12% to 15% return really realistic for most art collectors? That figure comes from Artprice. The company found that that the annualized return for art sold for more than $100,000 at public auctions in 2015, which had appeared in the auction market before, was between 12% and 15%. However, in its 2015 art market report, Artprice found that art sales of more than $100,000 account for less than 4% of auction lots.

Artprice also discovered that art works sold for between $20,000 and $100,000 in 2015 posted an overall annual return of 9.6%. Anything under $20,000 is not categorized as an investment, even though 90% of all fine art sold at public auctions last year sold for less than $19,320 and half sold for less than $1,234.

So while only 4% of art sold at auction last year achieved an annualized return of more than 12%, according to Artprice, more than 90% of art sold is not on the company’s investment radar and is deemed “of little economic significance’.

This may seem obvious, except that collectors often snap up the work of emerging artists for prices below $20,000, hoping for a financial return. “The traditional collector, when I began in the 1970s, was not concerned at all about the secondary market when they bought emerging artists,” said art advisor and curator Jeffrey Deitch during the same Armory panel. “Today’s collector is generally very concerned about getting their money out.”

Art indices are forced to rely on data from the public auction market and limited by the large amount of art market information that is unknown, so their return calculations can be unreliable. They don’t include private gallery and dealer sales, for example, which make up around half of all sales, lots that don’t sell at auction, or art that is not valuable enough to be resold in the first place.

As Jean Minguet in Artprice’s Department of Econometrics points out, the 12% to 15% Artprice calculated on all works sold for over $100,000 at auction in 2015 takes into account some unavoidable biases, including the fact that some art works do not appear as a repeat sale in their database when these art works drop in value, because not all auctioneers provide this information.

But art indices also slice up the publically available data in different ways, producing vastly different results. So although the Mei Moses Art Indices also track repeat sales of art at auction, they present a much more gloomy view of art market returns in 2015.

The Mei Moses World All Art Index was down 3.1% in 2015. The rest of the Mei Moses indices are broken down by category, not price. Of the Impressionist and Modern, Old Master and Nineteenth Century and Post-War and Contemporary categories, only the last of these posted a positive return last year, rising 4.1%.

The bottom line: could you have sold your art for a 12% annual return last year, even though the market shrunk somewhat? Given all the data that is publicly available, probably not.

Source: Forbes