New research shows that financing a new or used car is more expensive than ever.
A record-setting 15% of people who financed their new cars in Q4 2022 cost them more than $1,000/month. Moreover, there’s still an ongoing chip shortage and increased raw material costs. In the U.S., the average price of a new vehicle was up 6.3% in the last year.
This leads to the question, “When will car prices drop?”
The answer is, in short: Now. 2023.
J.P. Morgan Research predicts prices will decline by around 2.5% to 5% for new cars and 10% to 20% for used cars in 2023.
“There are some glimmers of normalization, with prices finally easing somewhat, though conditions remain far from normal. Looking ahead, we expect much less moderation in new vehicle prices than in used vehicle prices,” said a J.P. Morgan Analyst.
So if you’re car shopping, there might be some relief ahead. You may even find a few bargains in the coming months. That’s the good news. The bad news is that you’ll still need to be financially prepared to drive away with the best deal.
Used Car Prices Have Likely Peaked
The chances of recession go down by the day.
The Federal Reserve recently started slowing interest rate hikes to 25 basis points; in non-nerdy terms, you might not be paying as much on your car loan.
In addition, car makers are also pressured to reduce prices to remain competitive.
“While industry conditions are likely to normalize to some degree in the second half of this year and while many commodity prices have reversed, earnings reports so far this season seem to confirm that the road to recovery may be less rapid and less linear than earlier thought,”
-J.P. Morgan
According to estimates from J.D. Power and LMC Automotive, the average price paid for a new car in December is at a record $46,382. What goes up must come down.
But it won’t happen all at once.
Analysts say the decline will be gradual, with prices declining by 2.5 percent to 5 percent in 2023.
You won’t see much decline for new cars yet, but used cars will become more affordable, with a decline of 10 percent to 20 percent in prices. That’s good news for budget-minded car buyers.
When Will Car Prices Drop?
Despite the current optimism, a recession is still lurking in the shadows.
Recession or not, the car market will remain competitive. Carmakers are always tweaking incentives and financing deals to keep buyers in their showrooms.
If the economy does take a turn for the worse – which is not currently being indicated; look at the stock market – car buyers can expect to see even steeper discounts and better financing packages.
The one indicator to watch for is gas prices.
High gas prices are always an indicator of a possible recession.
And, even at their highest, when adjusted for inflation gas prices were far below 2008’s peak.
Survive, By Any Means Necessary
Ready to rule the car market?
If not, here’s a good place to start: follow what they do on Wall Street.
When everyone is clamoring over their dream cars and throwing money around, you know it’s time to tap the brakes – literally! And when others are too scared of taking any risks in buying or selling vehicles…you could be sitting pretty (and driving away with some great deals) if you stay brave and bold.
That’s what makes 2023 a great year to get a car. Prices are coming down, but consumer sentiment is still bearish.
That means it’s the perfect time to get a great deal if you know how to navigate the market. And with any luck, by 2023 you’ll be driving off into the sunset in your dream car – at a great price.
So don’t fear sticker shock; just be smart. With the right knowledge, you can find the best deal and drive away with a great car – no matter what happens in 2023!
