Trends

I had a somewhat jolting experience the other day.  I went to my local post office to mail a letter via Priority Mail.  Priority Mail was a perfect choice for this letter.  In addition to ensuring fast delivery, U.S. Postal Service Priority Mail also allows for tracking.  And although I hadn’t sent anything Priority Mail for quite a while, I expected the price to be reasonable – a few dollars perhaps.

My price expectations were not realistic.  When the clerk told me the total was $6.45, I had sticker shock.  It seemed to me as if Priority Mail was far more expensive than I had remembered it being in the past.  I was mailing a normal, standard-sized letter.  At the time, a first class stamp only cost $0.47.  Why the huge disparity in price?

So I did a little research.  I compared the change in Priority Mail rates between 2006 and 2016.  Over this ten year period, the base price of Priority Mail increased from $4.05 to $6.45.  This is an average rate increase of 4.76% per annum.  I then compared this to the U.S. CPI inflation index over the same period.  It had only increased by 1.82% annually.  So the price of the U.S. Postal Service’s Priority Mail had escalated at an almost 3% faster pace than inflation every year for the last decade.

Then it hit me.  This is a classic example of what is known in economics as “creeping inflation”.  Creeping inflation is defined as a situation where the price of a particular good or service gradually, but inevitably, ratchets upwards over time.  Although none of the price increases seem excessively large in isolation, after accumulating for long enough, they ultimately result in major inflation.

Unfortunately, there are several areas of the U.S. economy that have been experiencing the corrosive effects of creeping inflation.  Health care and education are two prime examples.  Prices in these sectors have reliably exceeded the general inflation rate for decades now.  As a result, they are becoming unaffordable for average people.

Perhaps surprisingly, the art and antiques market are another part of the economy that has experienced creeping inflation for the past 10 to 15 years.  A broad range of investment grade art and antiques have seen this phenomenon.  Ancient and medieval coins, vintage mechanical wristwatches, antique jade carvings, estate jewelry and vintage prints are just a few of the categories that have radically increased in price over the last decade.

In fact, most investment grade art and antique prices have generally risen by a factor of two to four over the last 10 to 15 years.  This equates to an annualized appreciation rate of anywhere from 4.73% to 14.87%.  This creeping – and occasionally galloping – inflation in the fine art world has important implications for both collectors and investors alike.

On the one hand, it means that art has proven to be a great investment for connoisseurs over the last several years.  The returns for investment grade art and antiques have equaled, and, in some instances, handily exceeded those from traditional financial assets.  And carefully chosen, high quality art will probably continue to be a very good investment for many more years to come.

However, one negative aspect of creeping inflation is that investment quality art and antiques are becoming ever less affordable to the average collector.  Now this isn’t an issue yet for lower priced antiques.  For example, an investment worthy piece that traded for $50 in the mid 2000s might cost $125 in 2016.  The current cost still won’t break the bank, but the happy days of picking up a couple nice pieces for a single hundred dollar bill are long past.  In addition, as prices continue to escalate due to creeping inflation, even today’s bargains will eventually pull out of reach.

If you are interesting in fine art or antiques as alternative assets, it is important to act now.  The prices of these overlooked investments have appreciated faster than the rate of inflation for well over a decade.  Investment grade antiques that used to be plentiful and inexpensive are becoming progressively rarer and more expensive.  Creeping inflation will eventually price many unwary investors out of the fine art market.

Now that 2017 is here, let’s gaze into our crystal ball in order to forecast some meaningful future trends for antique investing.  So, without further delay, here are the Antique Sage’s top 8 antique investing trends for the next decade, listed in no particular order.

1) Items from the 1970s and 1980s will start to be considered antique

It generally takes approximately 40 to 50 years before an object is considered antique.  So as we move into the 2020s, objects from the 1970s will start to be widely accepted into the pantheon of antiques.  The 1970s, with its wild combinations of sleek modernism and textured, abstract naturalism, is sure to attract a large connoisseur following.

Even items from that notorious decade of excess, the 1980s, will begin to acquire the aura of antiqueness as they reach 40 years of age in the early 2020s.  Characterized by bold geometric designs, a preference for bright, primary or neon colors and lavish use of luxury materials, the 1980s will undoubtedly carve out an important niche for itself in the collector’s community.

2) As traditional asset markets struggle, interest in antique investing will boom

The traditional asset classes of stocks and bonds have both had a tremendous run since they bottomed in the financial crisis of 2008-2009.  This stellar performance has convinced a lot of people that paper assets will continue to deliver the 10% returns that they need every year to achieve their financial goals.  But while the honey has flowed so far, this is extremely unlikely to be the case over the next decade.

Instead, it is highly probable that stocks and bonds – already priced for perfection – meet the harsh reality of a structurally weak, heavily indebted global economy.  As traditional asset prices either stagnate or drop, investment grade antiques – those made from precious metals, exotic woods and glittering gemstones – will naturally appreciate in value.  Widespread investor interest in this new, alternative, tangible asset class is sure to follow.

3) Precious metal prices will increase, impacting the antiques market

Further dislocations in global trade, the economy and securities markets are almost an inevitability at some point over the next ten years.  This will cause a flight to safety among investors.  The chief beneficiaries of this trend will be U.S. Treasury bonds, backed by the full faith and credit of the United States government, and precious metals.  Gold and silver, coveted for centuries as the ultimate form of financial payment, will be the world’s preeminent hard currency.

Although no one can say exactly how high gold or silver might go in another financial crisis, we can be certain that the trend will be up.  Many investment grade antiques, including coins, jewelry, silverware, wristwatches and fountain pens, are made, either partially or completely, from precious metals.  So it isn’t a stretch to infer that an increase in the price of gold and silver will also put upward pressure on the value of these investment quality antiques.

4) The collectibles market will continue to crash

The collectibles market, including such diverse categories as memorabilia, glassware, porcelain and antique furniture, has been in secular decline ever since the Great Recession of 2008-2009.  The middle class, the former mainstay of the collectibles trade, has been decimated by the poor economy.  And things don’t look to be improving anytime soon.

So collectible prices, already down anywhere from 25% to 80% over the last 10 to 15 years, are set to continue falling unabated over the next decade.  Meanwhile, investment grade antiques – a completely distinct category from collectibles – have doubled, tripled or even quadrupled in price over this same timeframe.  I know where I want to put my money.

5) 18th century antiques will become the new 17th century antiques

Right now, high quality antiques from the late 18th century – the 1770s, 1780s and 1790s – are still reasonably available in the marketplace.  But those antiques are currently at least 220 years old.  And, as the 21st century rolls on, the 18th century will disappear further and further into the mists of the past.

In effect, the 18th century – along with all the wonderful Rococo, Neoclassical and Georgian antiques from that time – will soon seem as distant from us, temporally speaking, as the 17th century does.  Progressively fewer of these beautiful, old, 18th century antiques will be accessible to collectors over the next decade.  As supplies dwindle and the recognition of this trend increases, prices will predictably rise.

6) The death of the physical antique store will finally be complete

Quaint little antique stores, once ubiquitous in small town and rural America, will finally disappear forever.  The shrinking population base of these areas, coupled with high commercial rents and a persistently weak economy, will make it impossible for most of these physical antique stores to survive.  Within the next 10 years, this antique shop annihilation will be largely complete.

Yes, there will still be some physical antique shops in large cities, although far fewer than in years past.  And thrift and secondhand stores will persist, as well.  But the bulk of antique transactions will take place on the internet via eBay, Etsy, Ruby Lane or other online sales platforms.  This will be a major – and permanent – change in how the buying and selling of antiques happen.

7) Small antiques will be the new black

The 1980s, 1990s and early 2000s were renowned as a period of gross excess and unrepentant materialism.  One of the ways this manifested itself was through the all encompassing motto, “Bigger is better.”  People aspired to own huge SUVs, bloated McMansions and as much “stuff” as they could possibly hope to cram into both.  In this environment, massive Victorian furniture, oversized paintings and monumental sculpture sold briskly.

But the world has recently become reacquainted with the simple pleasures of the diminutive.  People are now living in smaller spaces, like condos, townhouses or modest single family homes.  They don’t have the time, money or patience to wrestle with mammoth works of art or antiques.  Compact and portable, investment grade antiques fit this blossoming need for petite art perfectly.

8) The mid-range of the antique market is where the action will be

We’ve been assaulted over the past several years with interminable articles and stories about important antiques and other works of art setting multi-million dollar auction records.  This has given the distinct impression that fine art and antiques are only for the uber-wealthy or financial elite.  However, much of this demand for ultra high-end antiques has been driven by the frothy securities markets.  The next decade, however, will almost certainly feature a fair amount of financial market chaos.  In this scenario, antique buying from the ultra-rich will diminish considerably.

Instead, average, middle class people will gravitate towards investment quality antiques as a way to hedge the risks of traditional, paper assets.  This means the mid-range of the investment-oriented antique market, with prices between $250 and $5,000, will become the sweet spot.  The sensibly priced antiques in this category have already doubled or tripled in value since the turn of the millennium.  And there is every reason to think these overlooked investment gems will repeat that feat over the next 10 years.

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