High art prices may disguise malaise

MIKE COLLETT-WHITE

Reuters

July 2, 2008 at 1:38 PM EDT

LONDON — There are enough "recession-proof," super-rich buyers to push soaring prices for the best works of art still higher, experts predict, but the picture is less rosy at the lower end of the market.

And in a world where perception is everything, values for even the world's most sought-after artists could come back down to Earth with a bump if confidence were to slide.

Christie's and Sotheby's, the world's two top auctioneers, have just completed a series of summer sales in London that raised more than $1-billion, underlining how resilient the top end of the market is despite growing economic gloom.

Records tumbled and bidding was aggressive in the sales room, such as last week when a Monet water lily fetched the equivalent of $81.4-million Canadian, doubling the previous high for the French master.

Christie's raised $558-million overall during the London summer season of impressionist, modern, post-war and contemporary art, while Sotheby's has raised $454-million with just the relatively minor contemporary day sale to go.

"At the high end of the market there is a combination of extreme wealth and a lack of alternative assets for these people," said Anders Petterson, founder of ArtTactic, which tracks confidence in the art market.

"Auction houses are appealing to largely recession-proof buyers, including wealthy individuals from the Middle East, Russia and India."

But falling share prices, inflationary pressures and rising costs of oil appear to be taking their toll on the middle market.

At the Phillips de Pury contemporary art sale on Sunday, one-third of lots on offer failed to sell and the auction total of around $49.5-million fell short of its low pre-sale estimate.

"It's evident ... that the high end of the market (over $1 million) is currently operating independently from the lower price segments," the latest ArtTactic survey concluded.

Best art on show

The sharp rise in values for high-quality art has encouraged owners to part with their best paintings and sculptures.

"It can be good news for the art market if some people are hurting because of exposure to other assets, because it gets them to put works on the market they probably would have preferred to keep," said Ben Crawford, chief marketing officer at MutualArt.com, an online art information service.

He, like Petterson, sees values for the best works of art continuing to rise, and takes issue with the theory put forward that prices could be heading for a fall.

At the back of people's minds is the art market crash of the early 1990s, and comparisons have been drawn between the bubble created by Japanese buying then and aggressive Russian collecting today.

"There's an argument that there are a few rogue billionaires propping up the market, but that is clearly not the case," Crawford said.

While generally confident, ArtTactic's Petterson warned that psychology plays a big part in a market where the perceived value of brushstrokes on a piece of canvas was everything.

"The problem is when people in the market start to question and become uncertain," he said.

"There could be a political or economic jolt that is so dramatic that it distracts people at the high end of the market, and it is like a house of cards."