Is the art mania coming to an end?

About seven years ago I fell in love with a piece of art at a private view in Shoreditch.

It was a light sculpture by a couple of young artists called Sue Webster and Tim Noble. It was priced at £3,200.

I told the dealer I wanted it and agreed to call him the next day to arrange payment. Then something came up in the office and I didn't get around to it. By the time I did, he'd assumed I'd changed my mind and sold it to someone else. This was irritating for all sorts of reasons.

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First I really wanted the piece; second, I knew exactly where it was to go in my new flat; and third, it was so engaging I suspected it would turn out to be worth rather more than £3,200 in a few years. So I wasn't altogether surprised (irritated, of course, but not surprised) to see, three years on, that Webster and Noble pieces were changing hands for £20,000-£30,000.

Now I'm in shock: their work has been described by Sotheby's as having "fantastic zeitgeist currency", and in August a similar work to my lost one sold to an American dealer for £356,000.

Thanks to a boring bit of admin at BNP Paribas (where I was working) in 2000, I am down more than £350,000. Enough to pay school fees for two children. Enough for a six-bedroom mini-chateau in Normandy. Enough to chuck in my day job and spend the next decade lying under a palm tree in Thailand. It's just horrible.

The contemporary art market has been going nuts for years: prices are up 55% in the past 12 months alone, while new records are set almost every day. Last week a 1955 canvas by Mark Rothko went for $34m (£16.6m); Wayne Thiebaud's Seven Suckers went for $4.5m; and Hugh Grant offloaded an average Warhol for $23m.

In an auction room it may make sense; from a distance it has mania written all over it.

Bankers and hedge-fund managers can't spend all their money propping up the property market, so much of their excess cash has leaked into art. There's a glamour in art you don't get in the bond market. Hot on their heels are newly rich Russians, the Chinese and the Greek shipowners, all with fat wallets and a strange urge to empty them.

There are problems with this.

The first is that there is no real way of saying what a piece of art is worth. A bond has a theoretical value, as does equity. They don't always trade at it but a few minutes with a calculator and you can make a stab at whether they are under or overpriced.

Not so with art. Each piece is simply worth what you can persuade a bigger fool to pay for it. And that depends on fashion, the availability of speculative cash and how many people turn up at an auction on any given day.

A painting could go for $5m if three bidders get caught in an ego-driven bidding war, but $500,000 if only one bidder turns up. So the only way to know if the market will keep booming is to ask if people are going to keep turning up to auctions and paying record prices.

Sadly, I think we know the answer to this one. House prices in America are still falling, so the big bank write-offs are bound to continue. This year's bonus payments are set to be much lower and a greater proportion will be paid in shares than in cash.

Bankers only buy 10-20% of auction art, but 10-20% fewer bidders can affect prices fast (the same, by the way, is true of the London housing market). And if the global economy slows, I suspect even the billionaires might put their wallets away.

We got a hint of what might come next at the Sotheby's auction last Tuesday. A quarter of the lots including a Van Gogh and a Picasso failed to sell, costing the auction house, which had guaranteed prices to the sellers, a cool $14m.

Any art buyers who aren't nervous should look back to the 1980s. Then the Japanese imported $9 billion worth of paintings between 1987 and 1991 in a frenzy that peaked when Ryoei Saito paid $82m for a Van Gogh.

Then the Japanese bubble burst, the buyers disappeared and prices collapsed. The bulls will say that this doesn't matter, that art is a long-term investment and that most of the Japanese buyers should have been able to get out at a profit in the end. But if I were a contemporary art owner I would still be wary.

The Japanese could comfort themselves with the fact that their paintings weren't going to disintegrate in front of them. Not so for the owners of some of Damien Hirst's bits and bobs.

Last year his The Physical Impossibility of Death in the Mind of Someone Living, a shark in a tank, was reported to be rotting, and this year, Mother and Child Divided, a cow and calf in formaldehyde, to be leaking. Right now Hirst is around to repair these things. But what about when he dies? Will he be leaving a maintenance crew behind him?

The Japanese could also comfort themselves with the thought that the supply of their paintings was limited (the artists were all dead), which was bound to push prices back up eventually.

Again not so in the contemporary market. The likes of Hirst and Webster and Noble can keep on knocking stuff out for years. I hope they do (as soon as light sculptures get below £5,000 again I'm a buyer), but I'd be surprised if the collecting world agreed with me.

First published in The Sunday Times 18/11/07