Five years ago, the classic car market had just completed a turnaround that left even seasoned observers surprised by its speed. The deep recession that began in 2007 had dealt the same initial blow to vintage car prices that it did to the Dow and to the real estate market.
The downturn erased four or five years' worth of gains for collectible cars, by many estimates. But by 2014, most had fully recouped their pre-recession values, and the market has maintained an even keel.
There are some signs, however, that the good times may be coming to an end. A mix of factors is at play, including demographics, changes to tax laws and general uncertainty.
For auctions in 2018 and early 2019, the sell-through rate (the percentage of cars meeting reserve and selling) for million-dollar-plus cars has dropped about 20 percent from the previous year, according to Hagerty, a classic-car insurer in Michigan. That's the lowest rate since Hagerty started tracking the statistic in 2008.
The wealthiest and most discriminating collectors may simply be taking a pass on the current offerings, or "it may be a sign that the savviest collectors are sensing a change in the tone of the market," said Brian Rabold, vice president for valuation at Hagerty.
If the recent crop of cars isn't persuading elite collectors to raise their paddles, the question then becomes why aren't more owners of blue-chip cars selling them?
Cam Ingram, a collector and restorer in North Carolina, pointed to last year's changes in Section 1031 of the tax code, which had allowed the capital gains tax on a sale to be deferred if the proceeds were used to buy another collectible — artwork, say, or cars.
"One factor that few people are acknowledging at the moment is the effect of the loss of 1031 exchanges," Ingram said. "Top collectors were able to strategically play with positions in their collections to avoid realizing taxes on gains. Now they have to be far more disciplined. The change in the law is affecting both supply and demand."
With the economy still running strong, he added, few top collectors are in a position where they need to sell to free up cash.
Both Ingram and Michael Sheehan, a dealer/broker of vintage Ferraris in Southern California, acknowledged the perception among top collectors that now might be the time to hold the best of the best. When those cars do sell, they often do so off the radar and at still very robust prices, they said. Private sales have always taken place among elite collectors, but now comparatively few big private sales are the exception to the general rule that the top of the market is cooling off.
Demographics, too, are influencing this market.
"Every day, I get the same calls: Guy dies, his kids don't want the cars, and they want me to sell them. Or it's knee surgery, hip surgery or prostate cancer and the owner simply can't enjoy the car anymore," Sheehan said.
What Sheehan describes is most likely the vanguard of a wave of baby boomers getting out of the market, and nobody seems to have a clear idea of what comes next.
When the classic-car market rebounded after the recession, it was still boomer-driven, and the very top end came back first, in 2011, according to Hagerty data.
"The stock market was still in a slump, and cars were being talked about as one of the few asset classes where good returns could be had," Ingram said. "By the next year, the middle of the market [cars costing between $250,000 and $1 million] returned to health, and the year after that, the entry level got active again."
If there is a shift now, it's still in its early days, and the market may be mirroring its resurgence from 2011 to 2013. The broad entry level continues to be robust, according to Ingram and Rabold, while the top end is sluggish, a possible leading indicator of a general slump.
The U.S. economy is in its longest period of growth on record, and most observers predict a downturn reasonably soon. That would certainly affect the classic-car market. But it's the demographic shift, combined with the potential for another 2008-like crash, that seems to worry the keenest market-watchers the most.
"Several things are in play here," Sheehan said. "There's general uncertainty and concern about things like the world economy and Brexit. The boomers are leaving the market in droves.
"Younger people can't drive a stick shift," he added, "and they can't afford the cars at the level that the boomers have driven the prices to — they're busy paying record money for housing, education debt and health care."
At the moment, the market seems to be in a holding pattern.
"Gen-Xers and millennials are still priced out of the market," Sheehan said. "The last time that the market corrected, in 2008, it turned around quickly after it became apparent that the recession wouldn't turn into a depression. Baby-boomer money was still in play, and it quickly drove prices back to pre-correction levels."
That may not happen again. "The boomers aren't going to be around to prop the market back up after the next one," Sheehan said.
What it all means is debatable. Ingram and Sheehan both believe that some form of correction is inevitable as baby boomers complete their exit from the market over the next 10 to 15 years. Their cars aren't going to disappear, but their ability to spend will.
"How Gen-Xers and millennials will value those cars," Ingram said, "is the $64,000 question."