A $1 billion test is looming for the art market, which is facing numerous cracks.

• According to ArtTactic, the art auction sales at Christie's, Sotheby's and Phillips over the next two weeks are predicted to reach a total of $1.2 billion, which is 18% lower than the previous year.
• Dealers and art experts say the auction art market is stalled over price.
• This year, the spring sales have fewer than a dozen works priced above $30 million.

The original article was published in CNBC's Inside Wealth newsletter with Robert Frank, providing a weekly guide for high-net-worth investors and consumers. To receive future editions, subscribe and have them delivered directly to your email inbox.

Major auction houses anticipate a decline in key May art sales compared to the previous year, as affluent buyers and sellers pause from the heated pricing of 2021 and 2022.

The total sales at Christie's, Sotheby's, and Phillips over the next two weeks are predicted to be $1.2 billion, which is 18% lower than the previous year and only about half of the May 2022 sales, according to ArtTactic.

The art market has experienced a significant decline since its post-Covid peak, with global auctions of fine art falling 27% in 2022 and the average price dropping 32%, marking the biggest decline in seven years, according to ArtTactic.

In the first quarter of this year, the contemporary and postwar category, which is the primary revenue generator and growth catalyst for the art market, experienced a 48% decline in sales, as per ArtTactic.

Despite strong demand from buyers, auction houses face challenges due to limited supply, as collectors hold back on selling their trophies in anticipation of a better market environment. This spring, there are no major single-owner collections up for sale, such as the Macklowe Collection or Paul Allen Collections, which have historically driven sales.

"According to Brooke Lampley, global chairman and head of global fine art at Sotheby's, the art market is currently perceived as having a smaller offering this season. However, the true definition of the art market will be determined by the buyers' actions and the prices they are willing to pay for the work. Lampley expects the results to be strong."

Price pressures

The art market is experiencing a stall due to high prices, with sellers unwilling to accept lower prices than they could have obtained during the market peak in 2021-2022. At the same time, buyers are demanding discounts due to rising interest rates, an uncertain election year, and geopolitical uncertainty.

"Philip Hoffman, CEO of the Fine Art Group, stated that sellers desire a 20% increase in price while buyers seek a 20% reduction, resulting in a standoff."

Collectors are hesitant to buy today due to persistent inflation, higher interest rates, concerns about a slowing economy, upcoming elections, and geopolitical crises, according to dealers.

"Andrew Fabricant, chief operating office at Gagosian, stated that people feel hesitant due to the uncertainty surrounding the election and the Fed's decision on interest rates. The cost of money is currently higher compared to a few years ago, adding to the hesitation."

Despite having the funds and willingness to purchase, buyers are not buying due to the scarcity of high-quality art being auctioned off, according to experts.

"Hoffman stated that our clients have a substantial amount of cash and their inquiry is whether they should invest in the art market at the present time."

Fewer pieces

This year, the spring sales have fewer than a dozen works priced above $30 million.

This season's most expensive works at auction feature Francis Bacon's 1966 "Portrait of George Dyer Crouching," one of 10 monumental portraits he painted of Dyer between 1966 and 1968. The artwork is estimated to sell for between $30 million and $50 million at Sotheby's.

Joan Mitchell's paintings are also part of Sotheby's collection, with two estimated to sell for over $15 million.

Brice Marden's "Event," estimated at $30 million to $50 million, and Jean-Michel Basquiat's "The Italian Version of Popeye Has No Pork In His Diet," estimated at $30 million, are both being showcased by Christie's.

This season, there are few "masterpiece" works that can generate excitement among collectors and art advisors.

""Unless you have something truly unique and exceptional, I don't believe you will experience the same level of excitement in sales this season," Fabricant stated."

Given the long-term prospects for the art market, now is a good time to hunt for bargains, say art experts.

"If you can secure deals at pre-2022 prices and find something of quality, now is the ideal time to purchase," Hoffman stated. "In my opinion, the art market will be a fantastic investment over the next ten years. This is the perfect time to buy, not to sell."

Despite weak auction sales, private markets and galleries continue to thrive, according to advisors. New works sold in galleries are less affected by economic and stock-market fluctuations because they are not as dependent on investment returns. Auction houses are also experiencing growth in their private sales, where they facilitate direct transactions between buyers and sellers without a public auction.

Earlier this year, Ken Griffin, a hedge fund billionaire, purchased a Mark Rothko painting from Christie's for more than $100 million, according to CNBC. Collectors believe that selling a prized piece privately carries less risk of a failed auction, which can negatively impact its value.

"Drew Watston, head of art services at Bank of America, stated that private markets allow for targeted outreach to potential buyers. This enables artists to set specific prices based on their target market. The discretion provided in private markets allows for price testing and adjustments based on feedback received."

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