Automotive experts believe that after years of high car prices, the market for new and used cars is starting to cool down. However, they warn that prices will not be as low as they were before the pandemic.
Prices rose dramatically during the pandemic and remain high due to supply disruptions and shortages of semiconductor chips. These are used to power cars and other devices. Experts predict that market conditions will change and prices will fall.
The current factors that are causing the price drop are more inventory, higher interest rate (which increases the cost of auto loans), and inflationary concerns. This means that consumers don’t have the funds or the ability to purchase vehicles.
Karl Brauer, an executive analyst at iSeeCars.com, stated that “we’ve definitely hit a new paradigm” in the car market. Prices will not be kept at these high levels for more than two years.
Cool off with new car prices
Recent trends indicate that prices are not increasing as much as they used to. According to Cox Automotive’s Kelley Blue Book, the average transaction price for a new vehicle fell 0.6% to $49,388 in Jan. This is a decrease of 0.6% from the record-setting month.
Higher supply
Experts in automotive say that prices are getting slightly more attractive for consumers due to several factors. The first is new-vehicle supply recovery.
While supply problems have not been resolved in a significant way, they are better than they were one year ago. This is evident in a decrease in vehicle prices.
“What we are seeing now is that inventory on the new vehicle side is improving, which had been pretty bleak since a while,” Jessica Caldwell (executive director of insights at Edmunds), says. “While new cars have sold above the MSRP on average since 2021 [2022], in November [2022], average transactions were lower than the average MSRPs.”
Consumers are less likely to compete for limited numbers of vehicles when there is less supply. There is therefore more flexibility in pricing, more options for vehicles, and more incentives to lower interest rates. This can lead to less pressure to buy as soon possible.
Lower demand
Aside from the modest inventory recovery, the slower price rises have had a significant impact on consumer new-car demand. This is due to increasing concerns about an ailing economy and the Federal Reserve’s ongoing interest rate increases.
Caldwell says that prices are lower on the demand side because people worry about a recession.
Brauer believes that car buyers can expect a cooling in prices. However, Brauer anticipates that the tax season will counteract the drop and help to prop up prices a bit over the next few month. Refunds will give consumers more cash, which can lead to an increase in car purchases.
Used car prices are also dropping
Although prices for used cars have shown a slight increase in year-over-year comparisons over the past few years, they are still significantly higher than pre-pandemic. According to a recent iSeeCars.com analysis, the average price of a 1-to-5-year-old vehicle declined by 3% in 2022 compared with the previous year.
Many new car buyers were forced to buy used cars after the pandemic. This increased demand drove up prices and made it more expensive. Experts say this is a declining part of the used car market, which in turn is lowering used car prices.
Brauer says that many of these customers are returning to purchase new vehicles now that the supply is gradually improving. “And then, a certain number of them might hold off now because they are concerned about economic issues .”
Tips and tricks for buying a car in
There may be some light at the end if prices start to move in the consumers’ favor. However, prices remain high and volatile from a historical perspective.
Caldwell says, “We know that the market has become a bit friendlier for consumers.” “But, it’s not the same as it was in those glory days when there was more choice and dealers were more likely to discount prices to be lower than their competitors span>
As inventory is still improving, she suggests being open-minded to shop all markets, including used, certified pre-owned, and new vehicles.
Brauer says that consumers should do their research and have multiple models to choose from. This will help them not only find the right model for them, but also expand their search radius.
He says, “If you limit your search to the 30 miles that is closest to your home, it will severely limit your market.” You can use a car-buying app if you want to search for cars 50, 100, or 500 miles from your home.
Consumers should consider finance costs and monthly payments when looking for a vehicle.