Why Confidence in the Art Market Continues

Why Confidence in the Art Market Continues

If you have any interest in art investment or the art market then you would have undoubtedly read that the reports that the current art market bubble will shortly be bursting. There have been many predictions of an art market bust over the last few years all of which have failed to eventuate yet naive individuals continue to speculate and continue to get it wrong. Most of the predictions of an art market collapse have emerged during a crisis in another market such as the sub-prime housing crisis or the banking crisis but none of these crises seem to have had much of an effect on art.

Considering that the so called “art market crash” of the early 90’s was fuelled by the Asian financial crisis which had a knock on effect on world markets, it would seem quite reasonable to assume that a crisis in another financial market would have the same impact on the market today, but there is one important difference with the current art market boom compared with the early 90′s art market boom. A lot of the art being bought in the early 90′s was funded by debt (borrowed money) which meant that when the Asian financial crisis struck those people that had used debt to fund their art collections were suddenly faced with a reduction in the value of their other investments and assets, unemployment, and not being able to repay their debt so they panicked and started selling their assets which included their art collections. The panic spread and more and more people begun selling their art creating an over-supply and a lack of demand which in turn caused a reduction in value.

The difference with the current market is that there is a much smaller number of people funding their art collections with burrowed money which is mainly due to the huge increase in the number of wealthy people and the amount of cash that they have to spend. This means that if there is a panic in another market that most of the people who have art collections have enough wealth to be able to ride out the storm and not have to sell their art thus avoiding a panic.

I have no doubt that the art market will experience a correction but not in the current climate of market confidence and wealth.

 **Nicholas Forrest is an art market analyst, art critic and journalist based in Sydney, Australia. He is the founder of artmarketblog.com, writes the art column for the magazine Antiques and Collectibles for Pleasure and Profit and contributes to many other publications.