Art: Is It Crying Time Again?

The hot art market could be ready for a downturn.

Don't let those heady art auction sales fool you. Despite records set in the November auctions for dozens of mainly contemporary artists, including Roy Lichtenstein, David Hockney, and Barnett Newman, some signs suggest the market may have peaked. Careful collectors can still find reasonable prices by combing through overlooked segments such as 18th century paintings, or by identifying promising young artists whose prices have yet to soar. Just be aware that for many other types of works, if you pounce now, you may be buying near the top.

That sentiment began to take hold in the third quarter, when world art prices fell 15%, the first such drop in a decade, according to Artprice.com, a French outfit that tracks auction results. The main reason: American sales plunged 47% in September because of September 11 anniversary jitters, an indication of what might happen if war with Iraq breaks out. If you include gallery and dealer sales, the world art market may not have grown at all last year: Dallas economist David Kusin figures it totaled about $23.5 billion, the same as in 2001.

Even in contemporary art, where prices are climbing, such well-known collectors as San Francisco investment banker Thomas Weisel and German real estate developer Hans Grothe are selling more than they're buying. "Most of the world is struggling with economic problems, yet art prices just keep increasing," says Ingvild Goetz, a major Munich collector. "I don't get it." Adds Los Angeles collector Eli Broad: "I cannot imagine the market going higher. If anything, I still believe there should be a [price] adjustment."

Of course, good works command high prices in almost any market. The Massacre of the Innocents, a rare Peter Paul Rubens found hanging in an Austrian monastery, sold for $76.7 million at a Sotheby's (BID ) auction in London last July. A bronze baboon set a world record for a Picasso sculpture by going for $6.7 million at Christie's in November. And, although one-third of the 21 works in the Weisel sale at Sotheby's in November failed to sell, the best pieces soared in price. Orestes, an early Willem de Kooning, went for an astonishing $13.2 million.

Some collectors are paying top dollar for works they really want. At the fall auctions, Broad anted up $2.6 million for an Alexander Calder mobile, $834,000 for a 1984 black and white painting from Andy Warhol's Rorschach series (double the price three years ago), and $1 million for a large oil painting titled Achilles and the Tortoise by 53-year-old U.S. artist Mark Tansey (four times the previous record for a Tansey). Among the 46 paintings Grothe sold last spring and late in 2001 for a total of $23 million was a rare early work by Gerhard Richter, the 70-year-old German artist, that fetched $9 million, according to German press reports. Grothe confirms that the buyer was French financier François Pinault, owner of Christie's.

More affordable works take some digging to find. Collectors may want to focus on out-of-favor areas, such as 18th century English, French, and American paintings, Kusin says. New York dealer Debra Force points to 19th century American water colors, which can be had for as little as a few thousand dollars. Whatever your taste, it pays to scout bargains at the auction houses' day sales, where prices are generally more modest. Boston money manager Scott Black, who was outbid on several million-dollar Impressionist works in the evening sales, nabbed a $202,000 portrait by Camille Pissarro at a day sale. Broad snapped up a 1977 painting by Leon Golub, the 80-year-old Chicago-born artist, for $5,378, half the pre-auction estimate.

Another tactic is to focus on markets that are just gaining attention. In January, Christie's plans to hold the first major auction of so-called outsider works by self-taught artists, such as James Castle, an Idaho man who died in 1977. Untitled (Bird), one of his delicate string and paper constructions, is expected to sell for $12,000 to $18,000.

Video art, which is shown on TV monitors, is another promising area. Pioneering video collectors, such as San Francisco venture capitalist Richard Kramlich and his wife, Pamela, have already seen the value of their collections soar. Now, video art is showing up at major auctions, and the Kramlichs say their mainstream collector friends, such as Helen and Charles Schwab, are buying. Among the up-and-comers the Kramlichs recommend are London's Darren Almond, 31, whose videos, sculptures, and paintings sell for $5,000 to $25,000, and twentysomething New Yorker Slater Bradley, whose videos start below $10,000.

A good tactic for discovering new artists is to track the ones taken up by savvy dealers such as Marian Goodman in New York and Victoria Miro in London. Collectors are already lining up to buy works by artists Miro plans to feature in 2003, such as Verne Dawson, 41, and Tal R, an Israeli-born Dane. Prices range from $10,000 to $35,000.

Whatever art you buy, hold onto it. Research at New York University indicates that long-term investments in art appreciate almost as much as stocks--and are relatively impervious to economic downturns, sagging stock markets, and even war. But that only holds true if you amortize dealer and auction house fees--typically one-third or more of a work's price--over many years. Plus, if veteran collectors are correct, the market could be taking a hit anytime now.

By Thane Peterson

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