When Will Car Prices Drop?

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Between 2021 and 2022, car prices reached an all-time high due to the COVID-19 pandemic. In fact, in November 2021, the average used car cost 41% more than pre-pandemic prices. Fortunately, prices are finally beginning to drop. Based on recent industry data, used car prices dropped 24% from April 2022 to May 2022.

Fortunately, car prices could return to normal sometime this year. Money expert Clark Howard says the conditions will continue to improve gradually throughout 2022.

In this article, I’ll take a close look at the current used and new car markets as well as indicators about when car prices will go down.

New and Used Car Prices in 2022

Since the pandemic hit the United States two years ago, the prices of new and used cars have soared to all-time highs.

Several things led to the current vehicle market. Clark cites factory closures early in the pandemic and the ongoing spread of COVID that affected workers and slowed assembly lines. And then there’s the ongoing computer chip shortage. He says the result has been record-high prices for both new and used cars.

“Whether you go to the new car lot where you’ll find nothing or the used car lot where you’ll find shocking prices, it is the worst time to buy a vehicle since 1946,” Clark said recently. Fortunately, the vehicle market is finally beginning to stabilize, and car prices are expected to normalize soon, hopefully by the end of 2022 or early in 2023.

Clark Quote Icon“The used car market is starting to come down in price,” Clark said recently. “It’s not a straight line, but there’s a decline.”

Below, you’ll find more information on when prices are expected to drop for both used and new vehicles.

When Will Used Car Prices Go Down?

Buying a used car is often a great way to save money compared to buying a new car. But Clark says now is not the time you’ll find a deal. If you can get by without shopping for a vehicle right now, even if it means making expensive repairs on an old vehicle, that’s still your best move for the time being.

Clark Quote Icon“I’m really, really worried that people are taking out long-term loans with high monthly payments, and they’re buying at the peak of the market,” says Clark. “People are going to be much more upside down than normal because of the abnormal sale cycle we’re in because of everything that’s happened recently.”

So when will used car prices actually drop? While it’s difficult to say for certain, Clark expects used car prices to continue gradually easing throughout the year.

Last month, auto wholesaler Manheim released new data revealing the used vehicle value index through mid-July 2022. In the graph, you can see prices finally beginning to drop this year. However, we still have a long way to go before the vehicle market completely stabilizes. Fortunately, prices are finally heading in the right direction.

KPMG, one of the Big Four accounting firms, published a study in late 2021 on used car prices that concluded it’s difficult to predict when the market will completely stabilize. In the study, KPMG explored four possible scenarios for when supply and demand will return to equilibrium.

In each of the four scenarios, the vehicle market returns to equilibrium between October 2022 and October 2023. Three of the four scenarios echo Clark’s prediction that the market will gradually improve throughout 2022, which means we’ll likely see lower prices on used cars later in 2022, especially during the fourth quarter.

For now, if you have a used car to sell, Clark recommends that you do it sooner rather than later to get the best price. But if you’re looking to buy a used car, hold off for as long as you can into 2022. If you can wait until early next year, you’ll be even more likely to get a deal (or at least a fair price).

When Will New Car Prices Go Down?

The trend of new car prices has gone hand-in-hand with used car prices. Due to the semiconductor shortage and other factors, new car production has slowed significantly. With fewer new cars available and no decrease in demand, prices began rising.

According to KPMG’s study, U.S. dealer inventories had fallen to historic lows by July 2021 and new car prices soared past MSRPs. It’s expected that the market will balance out and prices will start to drop when automakers are once again able to produce a normal supply of new cars.

But Clark says this isn’t going to happen overnight and the supply of new cars is still very low.

Clark Quote Icon“If you drive past new car dealerships, you’ll see that there are no new vehicles at all on those lots. Any new cars that are being generated are already spoken for before they even release them from the factory once they get the chip that vehicle needs.”

Fortunately, the semiconductor chip shortage is beginning to work itself out. As production of new cars begins to pick back up, we should start to see a decrease in prices for both new and used cars.

Based on Clark’s predictions and recent industry data, this should begin to happen throughout 2022 and the market may even normalize by the end of this year or early next year.

Clark’s Top 5 Tips on Buying a New or Used Car Right Now

If you’re currently shopping for a new or used vehicle, be sure to take the time to comparison shop in order to avoid overpaying. While it may take a little longer to shop for a car, the payoff could save you thousands of dollars.

Here are five tips from Clark Howard on buying a car in the current market:

  1. Shop in a broader radius than you normally would. A lot of people buying new vehicles are now traveling hundreds — or even thousands — of miles to buy one because different dealers are handling the shortage of new vehicles differently. With relatively cheap one-way airfares available now, you can buy a car from a dealer hundreds of miles away and fly out to get the vehicle. If you’re looking for a specific car, Clark recommends looking up all the dealers that sell the car within 500 miles and then visiting their websites to see what inventory is coming in. Then you can email different dealers to find one that isn’t marking up prices over MSRP. Clark followed this method himself last year and saved $23,500 on a vehicle by buying it from a dealership 90 minutes away from his home.
  2. Don’t pay more for a used car than you would for a new car. Clark’s historical advice about buying a one- or two-year-old vehicle doesn’t really hold right now, he says. You may be able to find a new vehicle for less than you can buy a used one. Plus, you won’t have to worry about the car having problems or a bad history.
  3. Don’t pay for extra features out of convenience. The cars that dealerships are getting in stock right now are often loaded with extra features that you may not want. Avoid buying a car that costs more than you’d budgeted with features you don’t really need simply because it may be available the same day.
  4. Be patient. You may need to order a car and wait for it to come in. Last year, Clark waited six weeks for a vehicle he ordered, which he says wasn’t out of line with the current market conditions: “If you order exactly what you want from a dealer who isn’t marking prices up over MSRP, you’ll get the vehicle you want without the added on stuff, and you can save a substantial amount of money by being patient and waiting.”
  5. Don’t buy right now if you can avoid it. Hold off on buying a new or used car until the prices drop if you can. “This is the time to take your time and wait for the market to settle down,” says Clark. “If you don’t have to have a new or ‘new-to-you’ used vehicle right now, don’t buy one.”

Final Thoughts

Right now is still an awful time to buy a car. However, the conditions should begin to improve throughout the year.

“The vehicle market won’t just all in one day be healthy, but the conditions will gradually improve through 2022,” says Clark. “The extreme distortions in the used vehicle market will ease before the new vehicle market comes fully into equilibrium, but those ultra spiked used car prices will ease gradually through the year and the new car prices will be normalized by either the fourth quarter of this year or the first quarter of 2023.

The longer you can wait this year to buy a car, the better. If you do need to buy a vehicle right away, be sure to read Clark’s take on whether you should buy a new or used car in the current market.

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