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Art Market Update: Spring 2021

The art market’s return post pandemic

At Bank of America Art Services, we maintain a sharp focus on the art market and on the collectors, dealers, auction specialists and institutions that make it function. We work closely with many of you across four pillars: art lending, art planning, consignment services and arts endowment management. In this update, you’ll find our latest thinking about the transformation underway in the art market, and considerations for collectors. Talk to your advisor about how these trends and insights might be relevant to your own collection and plans for the future.


During times of economic crisis, the art market becomes supply-constrained. Buyers want markdowns, sellers balk, and overall business activity drops. In 2020, the art market saw a 30-40% reduction in the total value of art transactions compared with 2019.1 You might have thought that prices would drop to help supply meet demand. But instead, many collectors took advantage of low interest rates and a buoyant stock market to monetize their collection by borrowing against it. The few works that did come to market were met by strong demand, so prices have held steady. But given the overall market contraction in 2020, it was a challenging revenue year for auction houses, artists, galleries and museums. Collectors — and the value of their collections — came out unscathed. But the pandemic's impact will likely take another year or so to work its way through the system.



We expect four macro trends will drive an art market recovery in 2021:

  1. Global wealth effect
  2. Continued low interest rates
  3. Post-vaccine reopening
  4. The new digital option


Global wealth effect. The art market is a sentiment-driven market. And the most immediate drivers of sentiment are global equity markets. So while Main Street grapples with the coronavirus, the buoyant stock market continues to drive liquidity for the highest wealth tier. This economic surge is driven by an accommodative Federal Reserve (Fed) policy, a historic investment in digital innovation, surprisingly resilient consumer spending, and the tempering of trade war rhetoric across Europe and Asia. This mix is expected to lead the art market to new heights in 2021, particularly in the masterpiece segment.


Continued low interest rates. The art market is highly correlated with interest rates. As rates drop, the opportunity cost of owning art (a non-interest-bearing asset) and the cost of unlocking capital from your art via a line of credit also drops. The Fed has signaled that it will continue with its ultra-accommodative stance in combating the economic effect of the coronavirus and will seek to achieve an inflation rate of 2%. We believe this policy stance is bullish for the art market.


Post-vaccine reopening. The art market’s biggest impediment in 2020 was simply the logistical challenges of doing business: travel restrictions, closed galleries, digital art fairs and hybrid auctions. The art market is an event-driven, social, tactile ecosystem. As the coronavirus recedes and the world returns to a version of normal, the logistical challenges of doing business will begin to fade. Look for a return to the traditional six-month auction calendar, in-person art fairs and the opening of galleries.

Top 10 artists by their recent price growth (2010–2020)

Rank Artist Annual IRR*
1 Banksy 36%
2 Kazuo Shiraga 28%
3 Günther Förg 27%
4 Yayoi Kusama 26%
5 Pierre Soulages 24%
6 Mai Trung Thu 22%
7 Helen Frankenthaler 21%
8 Sanyu 19%
9 George Condo 19%
10 Yoshitomo Nara 18%

* Internal rate of return (IRR) is the annual rate of growth an investment is expected to generate.

Source: Sotheby’s Mei Moses by Michael Klein, as of 2021

Sotheby’s Mei Moses uses the purchase prices of the same painting at two distinct moments in time (i.e., repeat sales) to measure the change in the value of unique works of art. Based on approximately 90,000 repeat sales, 1612 to present.

The new digital option. Digital adoption during the pandemic has transformed industries, from retail to communications to Hollywood. Digitization was less transformative for the art market. Digital viewing rooms, virtual reality and online auctions were a critical stopgap measure and provided collectors a new buying channel for the foreseeable future. This will lower the cost of doing business for those with scale (auction houses) and raise the cost of doing business for those lacking scale (small to midsize galleries).


The Post-Coronavirus Art Market

arrow upwards for price level   The Adjustment
Spring 2021
The Recovery Through 2021 The New Frontier
2022 and beyond
(Primary and secondary market trophy works)
Lower interest rates and robust equity markets have kept prices strong The masterpiece emerges unscathed Low interest rate and global growth drives prices steadily higher
Established artists
(w/auction history and/or top gallery representation)
Continued low supply and lack of distressed selling have kept prices more stable than expected Higher supply of works coming to market resets prices slightly higher Supply-demand equilibrium stabilizes prices
Primary market contemporary
(no auction history)
Coronavirus restrictions, cancellations of art fairs, and logistics challenges  - expect continued depreciated prices Galleries shift to "bricks and clicks" model with many artists priced lower Gallery consolidation and restructuring poses a downside risk for many artist markets


(Primary and secondary market trophy works)
The Adjustment
Spring 2021
Lower interest rates and robust equity markets have kept prices strong
The Recovery Through
The masterpiece emerges unscathed
The New Frontier
2022 and beyond
Low interest rates and global drives prices steadily higher
Established artists
(w/auction history and/or top gallery representation)
The Adjustment
Spring 2021
Continued low supply and lack of distressed selling have kept prices more stable than expected
The Recovery Through
Higher supply of works coming to market resets prices slightly higher
The New Frontier
2022 and beyond
Supply-demand equilibrium stabilizes prices
Primary market contemporary
(no auction history)
The Adjustment
Spring 2021
Coronavirus restrictions, cancellations of art fairs, and logistics challenges  - expect continued depreciated prices
The Recovery Through
Galleries shift to "bricks and clicks" model with many artists priced lower
The New Frontier
2022 and beyond
Gallery consolidation and restructuring poses a downside risk for many artist markets

Source: Bank of America Art Services, January 2021.

Digital evolution/revolution

The art world’s digital pivot during the last 12 months has not only reflected the need to ‘go virtual’ due to the pandemic, but is giving rise to an exceptional new form of art. On the one hand we can expect much of the art market to return to its largely 19th-century tactile roots post pandemic. In contrast, the lightning rise of non-fungible tokens (NFTs) shows the elasticity of the market and collector’s interest in ‘newly minted’ categories.


Digital evolution. Despite the steep increase in digital sales in 2020, they only accounted for 18% and 13% of auction sales at Sotheby’s and Christie’s, respectively, in the first seven months of 2020.2 Still, the average value of lots sold online more than doubled this year, as collectors bid online at increasingly higher price points.2 However, buyers still crave the live theatrical and social aspects of evening sales, and the auction houses benefit from the energy and competition they drive. Expect a return to in-person marquee auctions when the pandemic wanes. We expect the hyper-curated sales—from single-artist-themed sales to collectable sneaker sales — to remain online-only. We believe these sales are here to stay at the lower end of the market.


Galleries with both global presence and a strong digital platform have come out on top. Online art fairs were a necessary stopgap measure during the pandemic, but despite strong VIP Day sales at Art Basel Miami Beach, collectors complain that 2019’s “fair fatigue” phenomenon has morphed into 2020’s “digital fair fatigue.”


Top 10 artists at auction in 2020 (by value)

Pablo Picasso $196.4 million
Sanyu $155.3 million
Zao Wou-Ki $143.0 million
David Hockney $125.2 million
Jean-Michel Basquiat $111.0 million
Francis Bacon $106.0 million
René Magritte $104.7 million
Gerhard Richter $87.8 million
Roy Lichtenstein $87.6 million
Andy Warhol $77.7 million

Source: ARTBnk, 2021.

The return of the event-driven market. The year 2020 was the year of the never-ending sales cycle. As demand held up amid the pandemic, auction houses increased the sheer number of sales. Then, in response to concerns over the presidential election, the auction houses bifurcated their fall season, typically held in mid-November, to one marquee October sale and one marquee December sale. We expect 2021 will see a shift back to an event-driven, seasonal auction calendar: two marquee auction cycles each year that will focus the attention of both buyers and sellers.

The eventual end of seasonal outposts. Many galleries smartly decamped for the Hamptons last summer alongside their collector bases, and then migrated south with them for the winter. Seasonal outposts will continue as a temporary stopgap measure, but they’ll eventually phase out as the pandemic wanes.


Strong private sales to continue. Private sales were at the heart of collector conversations this year, especially as early days in the pandemic rocked the markets. Sotheby’s, for example, reported $1.5 billion in private sales in 2020, up 50% from the previous year’s totals. Private sales will continue to be a strategic sales channel for collectors throughout the pandemic and even post-pandemic, as they offer the ability to transact off-cycle, de-risk and create price controls.


Digital revolution. On March 11, 2021, a non-physical JPG file by Mike Winkelmann, the artist known as Beeple, sold for $69.3 million, in an online auction at Christie’s, making it one of the 30 most expensive works ever sold at auction.3 The artwork was created (or “minted”) less than a month before the auction, and bidding started at $100.3 22 million people watched the auction online4, and over 350 people bid on the work.5


The first non-fungible token (NFT) sold by a major auction house, Beeple’s artwork reveals a potential multi-billion dollar secondary market for intangible property—think intellectual property (IP), Global Interchange Format (GIFs), retired trademarks, memes, sports highlights, digital events (like Jack Dorsey’s first tweet), and yes, cat videos. The ownership of the work, a unique piece of digital code, exists on the blockchain, a distributed digital ledger, which gives buyers proof of authenticity and ownership, as well as status. NFT options contracts and index funds now exist, with NFT indexes now trading on platforms like Coinbase, SuperRare and Nifty Gateway. Expect NFT’s to be used as loan collateral in the future, first by peer-to-peer lenders (for price discovery purposes), followed by boutique lenders. 


While NFT art may be a fad, the Christie’s sale signals that the secondary market for intangible assets has now arrived. The sale leaves many open questions about longer term market implications, but for the moment, the status of owning digitally native assets for young tech wealth can be more significant than owning a Picasso (and now almost as expensive).


Art lending and appraisals

Consistent with growing expectations of macro recovery into 2021 and beyond, the Fed has signaled that interest rates will remain at current historically low levels. In addition to supporting a buoyant art market, low interest rates have made art loans an attractive, low-cost source of capital for collectors who want to monetize their collections without the downsides of selling. With “low for long” as the key forward-looking rate perspective, collectors will take advantage of the current favorable conditions for art lending. Many will use art loans as part of a wealth building strategy or as an alternative to selling art. They’ll also use art loans to accelerate new acquisitions, generate liquidity to pay estate taxes or carry out strategic gifting at a favorite philanthropic institution. Regardless, collectors like that they can access the economic potential of their collections while continuing to keep the art on the walls of their homes (certainly a plus in the age of lockdowns and social distancing).

Reasons for art lending in 2021

  • Historically low interest rates
  • Art values have remained stable through the crisis
  • To avoid potential capital gains tax given the elimination of like-kind exchanges for art
  • As an alternative to selling art during a pandemic
  • To help reduce margin call risk compared to borrowing against stock during volatile times
  • For dry powder to quickly re-deploy capital
  • To guarantee works at auction
  • Balance sheet arbitrage
  • To re-deploy capital into business ventures
  • To use as a working capital line for a private business
  • To pay estate taxes or fund a trust without having to sell the art

Appraisals are, of course, a key component of the art lending process. Art loan collateral is appraised on an annual basis — less frequently than other collateral types — making art loans a way to help reduce margin call risk in times of market volatility. When obtaining an appraisal, keep in mind that there are four different values for every object, depending on the appraisal’s intended use: retail replacement, fair market value, marketable cash value and auction estimates. Be sure you’re using the right one for your purposes, whether they be lending, insurance, planning or gifting.


Appraisal firms have adjusted to operating within the logical constraints presented by the pandemic and continue to provide updated appraisals by viewing works via digital images, videoconferencing and, when appropriate, in-person site visits. And because appraisals are primarily based on past comparable sales, we’re not seeing the so-called “COVID discount” that some collectors have been expecting.


More museums selling works

The pandemic has seen a marked uptick in museums selling art from their collections. A temporary policy shift (effective through 2022) by the Association of Art Museum Directors (AAMD) allows for proceeds from deaccessions to be used for “expenses associated with the direct care of collections,” whereas pre-pandemic, they could only be used for acquiring more art.


Even with the loosening of restrictions, museum deaccessioning can result in controversy. This year, the Brooklyn Museum announced that it would sell 12 works to establish a $40 million fund for collection care, which was approved by the board and curators. By contrast, the Baltimore Museum of Art’s deaccession announcement was met with pledge withdrawals, board resignations and a petition to the state government to block the three sales.


Many museums are looking for redundancy in their collections to fund collection care and/or to rebalance their collections with underrepresented artists. Although deaccessioning can be a solution for some institutions, leadership should have a strategy to manage several key risks in the process:


Public relations
Donor and board sentiment
Major gift pledges
Donations, sponsorship, visitorship
Art sale process
AAMD policy parameters
Compliance with gift acceptance policy


Our recommendation: Don’t go it alone. Institutions will be best served by working closely with their trusted team of advisors—including fiduciaries, philanthropic advisors, art professionals and legal counsel—to help them navigate this complex, multifaceted process.


Tax/planning issues

Collection management. 2020 saw an acceleration of individuals moving from high-tax states to low- or no-tax states. This movement also reflects a concern about the coronavirus and social unrest in more densely populated areas. Collectors who are considering such a move should ensure that they engage collection management specialists to assist with the movement of their collections — from packing, to moving, to re-installation — as well as appropriate insurance coverage along the way.


Sales and use tax. Collectors should consult with their legal and tax advisors to ensure compliance with change of residency requirements, not only for income tax purposes but also for sales and use tax purposes. For example, if collectors move to a state with no income tax, and buy art and put it on the walls of their new home, they should be aware that the sales or use tax in their new state could be significant. Remember: Each state has different rules on mitigating the sales and use tax (for example, exemptions or a number of days of “first use”), and storage of art at free ports does not get you out of state sales and use taxes.


Planning and potential tax changes. Now that the 2020 election is behind us, what should collectors be thinking about when planning for the ultimate disposition of their collection? The Biden administration has proposed a number of tax changes that may affect collectors. Whether any or all of these are enacted, and whether they’ll be retroactive to the beginning of 2021, remains to be seen. These are the issues that collectors should be exploring with their tax attorneys:


1. Income tax. Increase of the top ordinary income tax rate from 37% to 39.6%. A sale of art held for a year or less would be taxed at 39.6%, plus the 3.8% Medicare surtax, for a total federal tax rate on gain of 43.4% for taxpayers with income of $400,000 or more. Add any state income taxes to that.


2. Capital gains tax rate. Increase of the federal long-term capital gains tax rate from 28% to 39.6% for taxpayers with $1 million of income or more. Add the 3.8% Medicare surtax, and the federal tax rate jumps from 31.8% to 43.4%.


3. Estate and gift tax exemption reduction and tax rate increase. The current estate and gift tax exemption of $11,700,000 per person is scheduled to decrease to $5 million (indexed for inflation) on January 1, 2026. A Democratic unified government might accelerate that decrease to 2021 or 2022. Additionally, the current 40% gift and estate tax rate may also be increased.


4. Restrictions on valuation discounts. Many planning techniques are structured to use valuation discounts. Under the Obama administration, the Treasury issued proposed regulations that would restrict the use of such discounts; those regulations were withdrawn by the Trump administration, but the Biden administration might reinstate the proposed regulations.


5. Elimination of basis step-up. Under current law, the basis of assets is stepped up to fair market value at death, and the decedent’s heirs only recognize gain on post death appreciation. The Biden administration has proposed: (1) carryover of the decedent’s basis to the heirs; (2) the decedent’s estate would owe capital gains taxes on appreciated assets purchased during the decedent’s lifetime at the time of the decedent’s death; and (3) a gift of appreciated assets during life would result in capital gains tax at the time of the gift. Any or all of these proposals could increase and/or accelerate capital gains tax liability and affect wealth transfer planning.


6. Charitable income tax deductions. Some good news! The increased charitable income tax deduction of up to 100% of a donor’s adjusted gross income (AGI) passed as part of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") has been extended into 2021. This applies only to cash gifts made to public charities (not a donor-advised fund or private foundation), and does not apply to donations of works of art; in which case the income tax charitable deduction is limited to 20% of donor’s AGI for works donated to a public charity. 


In 2021, the art world continues its evolution through an unprecedented period of transition and innovation. Bank of America Art Services looks forward to helping you navigate the market as the new art ecosystem emerges post-pandemic.


1, November 25, 2020


2 New Buyers Prove Art Market Resiliency and More Key Insights, By Michael Klein, September 25, 2020


3, March 12, 2021


4, March 12, 2021


5 sells-for Christie-s-nft art auction, March 11, 2021


Information is as of 03/15/2021.


Opinions are those of the author(s), as of the date of this document and are subject to change.


Investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results.


Nonfinancial assets, such as fine art, are complex in nature and involve risks including total loss of value. Special risk considerations include complex tax considerations and lack of liquidity. Nonfinancial assets are not appropriate for all investors. Always consult your independent attorney, tax advisor, investment manager and insurance agent for final recommendations and before changing or implementing any financial, tax or estate planning strategy.


The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A. (“Bank of America”), and Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S” or “Merrill”), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation (“BofA Corp.”).


Credit facilities are provided by Bank of America, N.A., Member FDIC, its subsidiaries or other bank subsidiaries of Bank of America Corporation (“BofA Corp.”), each an Equal Opportunity Lender. All loans and collateral are subject to credit approval and may require the filing of financing statements or other lien notices in public records. Asset-based financing involves special risks and is not for everyone. When considering an asset-based loan, consideration should be given to individual requirements, asset portfolio composition and risk tolerance, as well as capital gains, portfolio performance expectations and investment time horizon. A complete description of the loan terms will be found in the individual credit facility documentation and agreements. Clients should consult with their own independent tax and legal advisors.



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