As big spenders retreat, the art market experiences a significant correction.

• According to The Art Basel and UBS Survey of Global Collecting, there are more sellers than buyers in the global art market.
• The current art market is experiencing a generational shift, resulting in a supply-demand mismatch.
• The oversupply of seven- and eight-figure Impressionist and Abstract works is attributed to the diverging paths of different generations, according to dealers.

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.

The global art market is expected to experience a second consecutive year of decreases, with a decline in demand for high-priced trophy works and a preference among new buyers for lower-cost pieces, as indicated by a recent survey.

The Art Basel and UBS Survey of Global Collecting reported that auction sales at Christie's, Sotheby's, Phillips, and Bonhams decreased by 26% from 2023 and 36% from the market peak in 2021. Additionally, the number of wealthy collectors surveyed who plan to purchase art in the next year fell to 43% from over half in 2023. However, the number of collectors who plan to sell increased to 55%, indicating that there are more likely sellers than buyers in the market.

"UBS Global Wealth Management's chief economist, Paul Donovan, stated that the biggest spenders have been moderating their spending or slowing down their pace. He explained that they are now taking a more considered approach."

Dealers, galleries, and auctioneers are anticipating a post-election rebound as the art world prepares for major auctions in New York in November and Art Basel Miami Beach in December.

The global art market is expected to perform well in the next six months, with 91% of wealthy collectors being optimistic, compared to 88% for the stock market. Only 3% of high-net-worth collectors are pessimistic about the art market's short-term future.

Despite the survey, the median spending on art by wealthy collectors has remained constant at approximately $50,000 per year. Over three-quarters of wealthy collectors surveyed have purchased a painting in both 2023 and the first half of 2024.

Despite a range of indicators, including buyer interest and online sales, indicating another year of declines or stagnation, experts in the art industry suggest that geopolitical tensions, economic instability in Europe and China, and higher interest rates are eroding buyer confidence. Additionally, wealthy collectors are increasingly choosing to invest in cash and Treasuries, which offer higher returns than art, making it more expensive to purchase art.

The art market is experiencing a generational shift, resulting in a mismatch between supply and demand. Older collectors are selling off their high-priced but not masterpiece-level works, while younger collectors, primarily Gen Xers and millennials, are replacing them by purchasing more affordable and modern art from galleries and art shows.

The UBS report predicts that in 2024, the art market will experience a shift away from a supply-driven increase in value, as seen in previous years. Instead, trends towards greater selling will primarily impact sales volumes, with collectors selling off the lower-value works from the bottom of their collections and advisors focusing on streamlining client collections by disposing of unwanted or insignificant artworks.

The art market has seen a decline in the demand for high-end Impressionist and Abstract works, with an oversupply of seven- and eight-figure pieces. Prior to 2022, the high-end art market was the strongest, but now it is the weakest.

"Donovan stated that Gen X and the younger generations are less likely to buy the most expensive artworks, as they may have more budget constraints despite being more engaged. He also mentioned that the traditional buyers of higher-priced art are slowing their purchases."

In 2023, Gen Xers had the highest average spending on collectibles, with an average of $578,000, according to a UBS survey. Their spending continued to lead in 2024, with a more than 30% increase compared to millennials and a more than double increase compared to Boomers and Gen Z respondents.

In 2024, wealthy collectors reduced their exposure to art by allocating only 15% of their portfolios, down from 22% in 2021. Despite the debate over art's role as an asset, the decline in allocation suggests that many collectors have paused their buying. The increase in the value of other assets in their portfolios may have contributed to this decrease.

Art exposure among the super-wealthy has decreased from 29% to 25%, while millionaires worth less than $5 million have about 12%.

Collectors who have been in the market for decades have amassed large collections, which will either need to be sold, passed on to family, or donated to museums or nonprofits. The average number of works owned by wealthy collectors worldwide is 44, according to a survey. Gen Z collectors own an average of 33 works, while collectors who have been buying for more than 20 years own an average of 110 works.

The most common concern among those surveyed about the art market was the obstacles to the international movement of art, with 52% citing this issue. The second most significant concern was the increase in legal issues in the art trade, including restitution cases, fakes and forgeries, as well as ethical concerns regarding artists, such as compensation and promotion. Art market fluctuations ranked fourth.

The transfer of wealth from older to younger generations, estimated to be worth tens of trillions of dollars, could also lead to a transfer of art. A survey found that 91% of wealthy collectors inherited or received art through a will or bequest.

Although it is assumed that families will sell inherited artwork, 72% of those surveyed retained at least some of their inherited art. Those who did sell inherited art cited a lack of display space or taxes as the reasons, rather than taste.

"Donovan stated that it is incorrect to assume that when art is passed down through generations, the younger generation's tastes will lead to a complete dismantling of collections or selling. Art has an emotional impact and may be associated with specific pieces by parents."