As if the pandemic didn’t impact our lives enough, it also led to car prices skyrocketing between 2021 and 2022. Just another worry to add to the list!
The cost of almost everything increased, from inflation and stock shortages to inflated gas prices. But murmurs suggest that prices may be about to fall. But when? And is this true?
We’ve done the research to figure out whether or not car prices are going to drop and when. Keep reading to learn more.
Coming out of 2022, when prices reached an all-time high, experts forecast prices to decrease in 2023. Although the cost of both new and used cars will not drop rapidly in the coming months, the general trend is for prices to decline.
However, we recommend only purchasing a new car if necessary.
Why Did Car Prices Rise?
Car prices have been rising due to global supply chain issues.
The price of a new car has been rising due to an ongoing chip shortage and increased cost of new materials in the US. As a result, the average price of a new car was 6.3% higher in 2022 than in 2021.
The weighted average cost of raw materials used to produce a new vehicle peaked in 2021, rising 116% year-over-year. And classic vehicles aren’t the only ones affected; electric vehicles have also been affected by the rising cost of materials.
Key metal components such as lithium, nickel, and cobalt have spiked significantly. This shortage in the production of new vehicles had a knock-on effect and meant used cars were even more desirable.
As a result, the average price of a used car was 42.5% higher in September 2022 versus February 2020. This, combined with shockingly high gas prices and rising interest rates, has made car ownership expensive and unaffordable in some cases.
To summarise, the issues in producing new cars have fuelled demand for used cars, causing prices to soar. Fewer new cars purchased also mean fewer second-hand cars are in the market.
When Will Car Prices Drop?
Well, we have some good news for you.
Although new car prices declined slightly by -1.4% in September, the prices remained at this elevated level for 2022. The people at the Manheim Index predict a 4.3% year-over-year decline by 2023.
Sadly, inflation is still high, and despite material costs falling, supplies have vastly increased their non-commodity costs, which trickles down to the automakers. Costs like diesel, freight, shipping, labor, electricity and logistics keep production costs high for everyone.
In regards to the used car market, there is better news. Prices are already starting to drop slightly after their peak in 2022. New car production is slowly increasing, and the demand for used cars is mellowing out.
Although prices are not likely to return to pre-pandemic levels, J.P. Morgan Research predicts prices will decline by around 2.5% to 5% for new cards in 2023 and 10% to 20% for used cars.
How Is Inflation Impacting Car Sales Trends?
Several factors have impacted the fluctuating car costs. First, the increased sticker prices have slowed customer demand for new and used cars.
The SAAR (Seasonally Adjusted Annual Rate) of the US state that meager vehicle sales remain at recessionary levels, with only 13.5 million sales in September 2022. The sale of used cars was reduced by 8% in September 2022.
However, the sales of electric cars did not fare as poorly and increased by 12% as of August 2022. And the future of electric vehicle sales remains fruitful, with many Americans considering switching to electric yearly.
Overall, the auto industry will continue in the trend of ‘lower volume, higher price’. However, 2023 is forecast to have great potential for significant improvement and a move toward normalization in pricing.
Top Tips for Buying a New or Used Car in the Current Market
As you can see, the prices are forecast to go down, but slower than they rose. Nevertheless, prices will remain relatively high for the foreseeable future, so it’s a good idea to adjust your buying habits to get the best deal possible.
Here are 5 tips for buying a car in 2023:
Don’t pay more for a used car than you would for a new car
With the car market in a state of flux, and prices yoyoing, it can be challenging to know what to accept and what not to. Before the pandemic, you would never see a new car sold cheaper than a used one. However, in the current market, anything is possible. As a result, you may now be able to find a new vehicle that is more affordable than a used one.
Although the situation may feel desperate, purchasing a used car at a higher price than you would find the new one is never recommended. Nevertheless, it’s a good rule to remember.
Shop in the broader area than usual
Buying a new car used to be simpler, and you would likely find a reasonably priced car in your local area. However, many people travel hundreds, sometimes thousands of miles, to get a deal in the current market.
Consider the cheap airfare available and widen your search radius. Then, you can fly out, with a one-way ticket, to purchase a car somewhere and drive back.
Check dealers and sellers within a 500-mile radius to ensure you don’t get sucked in by a dealer with a captive local market. As a result, you could save yourself thousands of dollars and access a better selection of cars on the market.
Take your time
If you’re buying in a rush, you’ll only expose yourself to worse deals and panic buying. Furthermore, if you’re purchasing a new car, you may need to order it and wait for it to arrive.
If your local dealer is offering a car at a reasonable price, but with the caveat of waiting for it to arrive, you should do it. You’ll get the car you want at an affordable price and from a reputable seller.
Also, if you are buying in a rush, you may purchase the wrong kind of car for your needs, paying additional costs for features you don’t really want. So try to be patient and thoroughly research to find the right car.
Only buy if you really need to
Okay, this tip won’t help you if your car has just been written off. But, if you feel like an upgrade and a change of vehicle, try to wait until the market improves.
This is especially true if you have a strict budget. The market is set to improve in 2023, so keep your eyes peeled for a good deal and take your time if you can.
Shop online and join a credit union
Buying a car online is usually much cheaper than purchasing one from a dealership in person. Often, the financing options available at a dealership will be much worse than buying a new or used car at a credit union.
Newer vs. Older Models
Surprisingly, shoppers looking to purchase a slightly used car versus an older variant will see a more significant price drop. For example, the average price of a 2020 model at cars.com was $32,000 in November.
This is 4% less than the prior year. In contrast, the average cost of a 2018 model was $27,000, a 1% increase from the previous year.
Can I Still Trade-In My Car?
Yes, in fact, the value of your trade-in has only increased. As a result, those wishing to trade in or sell have been presented with a highly lucrative opportunity to get an excellent price for their current used vehicle.
In fact, the average trade-in value hit an all-time high of $10,00, a 49% increase from the previous year.
Car prices hit their all-time high in 2022, but fortunately, this will not increase. Although costs may never return to the pre-pandemic levels, they are set to come down gradually in 2023.
Also, you’re in luck if you want to trade in your vehicle and will receive a higher price than usual. For example, suppose you’re looking to purchase a car in the coming months.
In that case, we recommend taking your time, expanding your search radius, and buying online to get the best deal.