The speculative bubble in the art market reaches its peak in November 2007

[21 Jan 2008]


The art market recorded a 7th consecutive year of price rises in 2007. The annual increase at global level amounted to +18%. It was accompanied by Fine Art proceeds of USD 9.2 billion, an increase of 43.8% over the year, swelled by the proliferation of million-ticket sales, auction hammers having come down on 1,254 sales of over USD 1 million in 2007, compared with 810 in 2006. 2006 had already recorded an unprecedented number of transactions and 2007 was an exceptional vintage.

The end of the year, which saw some staggering results, particularly in the speculative and volatile field of contemporary art was, however, uncertain in given the unfavourable economic backdrop. Between fears of the bill for the sub-prime crisis which emerged as of the month of August, jittery global stock markets and a troubled US economy, nothing suggested the art market would be strong in November and December 2007. So buoyant indeed that Sotheby’s recorded its best-ever sale on 14 November with proceeds of USD 316 million on its ‘Contemporary Art Evening’ sale, beating the USD 286 million raised in its ‘Impressionist and Modern Art’ sale of May 1990. The previous evening, its rival Christie’s achieved revenues of USD 325 million.

In order to take advantage of this exceptional demand, many players put pieces acquired several years earlier for prices well below current levels back on the market. A few examples of resales suffice to see how much art works can appeal as speculative assets. What can one say about the portrait of Elizabeth Taylor by Andy WARHOL, which sold for USD 21 million at Christie’s, whereas it had been acquired by actor Hugh Grant just 6 years earlier for USD 3.25 million? How else do you explain, other than by speculation, that a Frank AUERBACH painting, Reclining Figure of Jym (1985), can find a buyer for GBP 270,000 compared with GBP 30,000 in October 2003! In this game, even a blue chip artist like Claude MONET can see healthy price appreciation on 1990 levels, the peak of the last speculative bubble: Waterloo Bridge, temps couvert, was sold in London to a US collector for GBP 16 million (USD 31.7 million) on 18 June 2007, ten times the price paid by its previous owner 17 years earlier. These lucrative returns are not the exclusive prerogative of the wealthiest collectors.

200 paintings sold at least twice at auctions

Even at under EUR 10,000, a sector which traditionally represents 90% of transactions, such capital gains are just as frequent. There are numerous examples of speculative trading. Simply crossing a border makes it easy to speculate from one auction room to another. Jeune fille avec chat et fleurs, an ink by Odilon REDON purchased for EUR 3,200 at Christie’s Paris in December 2006 was resold for GBP 6,500 (EUR 9,500) three months later at Sotheby’s Olympia (London). Relief sur l’idée du Requiem, a pastel by Jean TINGUELY, auctioned for EUR 4,500 in 2006 at Villa Grisebach (Berlin), changed hands for EUR 10,100 at Piasa (Paris) last December. The bidding on Danza, danza all’erta fratellino, a Mimmo PALADINO canvas acquired for GBP 6,000 (EUR 8,735) in June 2006 in London, culminated at EUR 30,000 twelve months later at Meeting Art (Vercelli). Le Tir Forain by André LHOTE was even sold at auction three times in 2007: for EUR 8,200 in Limoges, then EUR 12,580 in London and, finally, for EUR 20,000 in Versailles!

These exceptional price levels now look pretty toppy, particularly as we begin the year with an economic downturn looking likely. The poor health of the global economy is unlikely to spare an art market which is not immune to significant stock market turbulence for very long. With the falls on Wall Street it may be that, within the next few weeks, there is less money to be spent in million-ticket sales at Sotheby’s and Christie’s. Analysis of the recent volatility in art prices suggests that 2008 is likely to be the year of the correction. A price collapse of 15% to 20% could impact the market in coming months. It should be remembered that, between July 1990 and July 1992, the Artprice Global Index, calculated using data on repeat sales, shows a fall of -44% in price levels recorded.