Is 2006 the New 1990?

I don't want to scare you, but I can't help noticing some striking similarities between the state of the art market in Spring 2006 and the situation in Spring 1990, after which prices went into freefall.

In 1974, the art market collapsed. Sixteen years later, in 1990, it collapsed again. Now, 16 years from that freefall, here are the eerie echoes:

---May 1990: The speculator-fueled auction market crests with the astonishing $82.5 million paid for van Gogh's "Portrait of Dr. Gachet," which had been estimated to go for $40-$50 million. The successful bidder, a representative for Japanese industrialist Ryoei Saito, was sitting in the back of Christie's auction room (not the usual perch for big-money bidders). Despite record auction totals, seasoned observers in the room see signs that the market is beginning to soften. They are right: By the fall of that same year, the New York Times declares that "the ebullient mood that characterized art sales throughout the 1980s and as recently as last spring has vanished from the auction rooms." The following summer, Sotheby's and Christie's sales projections for the 1990-91 auction season plummet by 59 and 50 percent, respectively, from the previous year's totals.

---May 2006: Again, speculators have been playing the art market. An unidentified bidder, thought be a representative for a Russian buyer, also buried in the back of the auction room (this time, Sotheby's), ponies up $95.2 million (against a $50 million estimate) for Picasso's "Dora Maar With Cat." Despite the hefty auction totals, dealers and collectors fret afterwards about "inconsistent sales" that "reflect consumer confusion in an overheated market," according to the Wall Street Journal's May 12 recap. "The overall mood of the sales was strangely subdued, and a number of works missed expectations," the Journal reports.

It used to be said that fortunes of the art market were more correlated with the real estate market than the stock market. With the current real estate slowdown, we will soon get to see whether this adage still applies.

Some things don't change. As I wrote in my 1982 book, The Complete Guide to Collecting Art:

In the midst of an art market boom, it is tempting to believe that the rise in art prices is permanent, and there are many self-interested art merchants who are happy to encourage that belief. But while art-market history may not necessarily repeat itself, it is foolish to pretend it never will. If and when a shake-out comes, the same merchants who have touted art as an attractive investment are likely to observe approvingly that "overinflated prices" have come down to "more realistic levels."