An auction of Damien Hirst's work from 'Beautiful Inside My Head Forever' at Sotheby's in September 2008.

The recession-hit art market will see the number of art sales and the price of works of art fall as fashion is replaced by selectivity.

In the most savage cut yet seen in the recession-hit art market, London’s contemporary art sales next month have been more than halved.

Sales at Sotheby’s, Christie’s and Phillips de Pury & Co have been reduced from 1,064 lots last February to 437. The value of the sales has fallen by even more, from an estimated £204 million last year, to just £48.3 million, reducing the average lot estimate from £234,000 to £102,000.

The cuts are due both to necessity and circumstance. After the “half price” contemporary art sales in New York last November, when auctioneers had not yet adapted prices to match the severity of the economic downturn, changes had to be made to restore some stability to the market.

Reducing the number of lots was not difficult, as potential sellers are waiting to see where the market is going. But pricing the work that is available is more problematic.

There are only a limited number of contemporary artists who are selected for auction. When the market is up, their works can sell by the score because buyers have a herd-like mentality.

But when the market turns, the herd goes into retreat. If the market is being driven by long-term collectors and not speculators, as the results of the November sales in New York suggested, fashion is out and selectivity is in.

The task, then, is to know which artists, or which works by these artists, might still be in demand, and at what level.

The dilemma for the auctioneers is that, on the one hand they need to persuade sellers that the market is still intact, that the rarest, and most desirable works have not fallen in value. On the other, they want to attract buyers with bargain prices.

“We judge each work on a case-by-case basis,” says Pilar Ordovas of Christie’s. Her top lot is Man in Blue VI, a dark, early portrait by Francis Bacon, which is being sold by the insurance and pensions conglomerate Aviva with an estimate of £4 million to £6 million. “The price is the same as it would have been six months or a year ago,” says Ordovas.

But the majority of works have seen a significant readjustment. A Mark Rothko painting on paper, Green, Blue, Green on Blue, was sold in November 2007 for $6 million, and is back again with a £2.5 million ($3.6 million) estimate.

A Jenny Saville painting, exhibited by Christie’s at the Maastricht Art Fair in 2007 with a £900,000 price tag, is on offer for £300,000.

For those who bought at the beginning of the art boom, there are still gains to be made. At Sotheby’s, a 1969 painting of a woman on a reflective stainless-steel background by the Italian Michelangelo Pistoletto, bought in 2000 for £48,800, is now priced at £250,000.

Jeff Koons’s kitsch sculpture Stacked was bought in 1997 for what then seemed a princely $250,000, and is now offered for £2.2 million ($3.2 million).

But the prices, says Oliver Barker of Sotheby’s, are reasonable compared to what they might have been last year. His top lot, a recently rediscovered work by the Italian artist Lucio Fontana is estimated at £5 million to £7 million, much less, says Barker, than similar works by Fontana fetched at the height of the boom.

One of the key figures of the contemporary market is Andy Warhol. Twelve months ago, Sotheby’s and Christie’s had 44 Warhols for sale in London. Next month they have just nine.

The most valuable is a triptych of small, late self-portraits, known as “fright wig” self-portraits because in them Warhol’s wig stands on end as if he had seen a ghost. Each portrait is 12 inches square and identical apart from the colouring.

Four years ago, a single 12in square “fright wig” self-portrait, very similar to one in this triptych, sold for $374,400 (about £180,000). Two years later another sold in London for £1.4 million ($2.7 million). So three could, theoretically, have been worth around £4 million.

But Sotheby’s in its wisdom has taken the four-year-old price as the most relevant to today’s market and estimated their triptych at £550,000 or just under £180,000 per canvas. The big question now is whether such adjustments have been enough.