In large part due to the global supply chain crisis of the past few years and the infamous chip shortage that has resulted from it, the costs of new cars have skyrocketed in recent years. Demand has been so high that even used cars have increased in price.
Despite all of this, there may indeed be a light at the end of the tunnel. The cost of cars is beginning to decline. Here’s everything you need to know about the current car market and some guidance on the best time to buy a car.
The Good News: Car Prices Are Dropping
The average automotive transaction price climbed to $46,173 in July — an industry record — but a recent report from J.D. Power indicates that prices will begin to drop from this autumn and onward, resulting in prices that are “several hundred dollars cheaper” than this summer’s historic highs. Kelly Blue Book confirms this prediction, noting a 0.3% drop in prices between August and September.
The reason for this price drop can be attributed to a small constellation of factors, including:
- High-interest rates that are forcing dealers to lower prices
- Greater vehicle availability
- Worsening economic conditions that thusly weaken demand
In other words, supply has increased while demand has dropped (at least slightly). All of these factors translate into good news for car shoppers, who can now expect to see a wider selection and better prices than they’d been seeing since the beginning of summer.
The Bad News: Interest Rates Remain High
Despite this welcome news, car shopping remains a costly affair. For one, the recent price drop hasn’t been terribly significant, and high-interest rates have made financing more expensive than ever. Between March and October of 2022, interest rates have risen from 3.98% to 5.60%.
Drivers with little or low credit can expect to encounter even higher rates, which can make it difficult to afford a car without a hefty down payment. So while the actual vehicle price has dropped, the all-around cost of buying a new vehicle can be prohibitively high for some drivers.
Bottom Line: Is Now a Good Time to Buy a Car?
What does this all mean for today’s car buyers? First and foremost, if you’re in the market for a new car, you’ll be thankful to see a wider selection at the dealership than you would have this past spring, alongside prices that have measurably declined even from recent months.
You can take advantage of these recent price drops if you:
- Have strong credit
- Can make a substantial down payment to avoid high monthly payments
- Need a new vehicle right now
With that being said, however, now might not be the best time to buy a car, given the high-interest rates. Therefore, if you can wait until 2023, you may see automotive prices decline even further, and the Federal Reserve may start easing its monetary policy to offer borrowers some relief.
Making the Most of It
Despite recent price drops, high-interest rates continue to deter car shoppers from making a purchase. Prices may drop in the future, but for now, car buyers should expect to have good credit and make a significant down payment.