Car prices rose at a breakneck pace during 2021 and 2022. As of Febuary 2023 new cars were selling for 30 percent more than three years before, while used cars were up a staggering $4,000 from where they were just two years ago. Coupled with the higher cost of borrowing as the Federal Reserve aggressively raised interest rates and elevated gas prices made car ownership more dear.
What caused the rapid increase in car prices? A domino effect starting with supply chain bottlenecks as a result of the covid-19 pandemic which throttled the number of new cars coming off manufacturing lines. As prices rose, fewer new cars were purchased.
This in turn crimped the supply of used cars available for those seeking a pair of wheels to get around. The dynamics have improved but it’s expected that it will still take some time before things return to normal, if ever.
With the entry-level Pro model now starting at $61,869, the electric F-150's base price has risen about $20K in one model year. https://t.co/mXW0Qk1URy
— Car and Driver (@CARandDRIVER) March 31, 2023
When will car prices become more affordable?
The good news is that new vehicle prices have been dropping for three months with the average transaction price at $48,763 in February according to Cox Automotive. New car prices are expected to maintain their downward trend in the months to come. Used car prices have been cooling as well for the past six months, but they may begin to rise again as supply tightens once more.
The main driver of the lack of new cars that had been fueling the skyrocketing prices was the microchip shortage. This has begun to ease but suppliers are still behind on meeting orders they have from car manufacturers. Then there is the fact that carmakers and dealers learned that they could keep prices higher if inventory was lower.
As prices have jumped, Americans began buying fewer new cars in general, with the average number of 17 million purchased each year before the pandemic dropping to 13.7 million last year. And there are not as many inexpensive models on the market, with the number of new car models available for under $25,000 going from 36 to 10 in the past five years. This has resulted in a 78 percent drop in sales of inexpensive cars.
This trickles down into the used-car market, as fewer new car sales means fewer trade-ins which leaves dealers with fewer used cars. Adding to the used car inventory problems are more would-be new car shoppers buying used cars reducing the supply.
On top of that Americans are holding onto their vehicles for longer, with the average car on the road now over 12 years old. It is now difficult to find a vehicle for less than $15,000, a situation that will most likely linger for some time to come.
FAQs
But will these price trends continue into 2024 and extend to the used car market? At the end of 2023, most experts predicted that car prices would continue to fall slightly in 20242. They also expected new car production to increase in 2024, leading to lower prices for new and used vehicles.
How long will vehicle prices stay high? ›
Car prices will likely continue to decrease
“Last month, the average price for a new vehicle was [$47,936] — a [1.4%] dip from last year, according to the latest KBB data. This suggests that new car prices might drop in 2024.” One factor that could lead to price drops is an oversupply of new cars.
Will used car prices go down in 2024? ›
For instance, during the J.D. Power Auto Summit in early 2024, Banks told the attendees that despite the price drops in the used car market, consumers are still paying 20% more than in 2021. According to CarGuru, consumers might see a new baseline price of $24,700 for used vehicles in 2024.
Should I buy a car now or wait until 2024 in the USA? ›
"2024 is probably the best year since the pandemic to buy a new car," Mark Schirmer, director of industry insights at Cox Automotive, told ABC News. "2021 and 2022 were really difficult years. Dealers are talking about discounts again ... this was not happening 18 months ago.
Are used car prices going to keep rising? ›
Car shoppers are saying no to ridiculously high prices, especially as interest rates remain high. In late 2023, retail used car prices eliminated the year's overall gains, returning to where prices were when 2023 began. In early 2024, used car prices are holding steady, even as new car prices drop quickly.
Will cars ever be affordable again? ›
Though inventories of new autos are still well below the roughly 4 million level that prevailed before the pandemic, analysts and dealers say the rising availability suggests that 2024 will be the most affordable year of the past five in which to buy a new car or truck.
Will used car interest rates drop in 2024? ›
Auto loan rates are expected to stop rising and possibly start descending in 2024, but they'll likely remain elevated in comparison to recent years (alongside the broader interest rates environment).
Will used car prices drop in 2025? ›
Used vehicle prices are expected to fall by 0.7% in 2024 from 2023. In 2025, prices are projected to rise by 2.5% from 2024. Used retail sales are projected to rise by 3.2% to 19.6 million in 2024 from 19 million in 2023.
Will car shortage end in 2024? ›
We almost forgot what that feels like, but our data show 2024 could shape up to be a buyer's market provided you're looking to buy new. New-car inventory increased by 36% year over year, with inventory levels close to what they were in February 2021 before pandemic shortages really started to hit.
What is the best month to buy a car? ›
It turns out that some times are better than others to buy a car. Even though there often are sales on vehicles throughout the year, such as around Memorial Day and Labor Day, the final few months of the year — think October to December — is the real sweet spot for buying.
Eliminating the following statements when you buy a car can help you negotiate a better deal.
- 'I love this car! ' ...
- 'I've got to have a monthly payment of $350. ' ...
- 'My lease is up next week. ' ...
- 'I want $10,000 for my trade-in, and I won't take a penny less. ' ...
- 'I've been looking all over for this color. '
A new car may cost you less in terms of repairs, at least for the first few years. By the time the vehicle starts to need major repairs and upkeep, you may be ready to trade it in. If you pay cash, a used car may cost you more for maintenance but less in interest charges on a loan.
Should I wait until May to buy a car? ›
Hold off on your purchase until the Memorial Day Weekend.
Like clockwork, used car prices go up during tax season due to the increased buying power of consumers thanks to their tax refunds. This increase in used car prices is more significant for lower-end vehicles.
Are used cars still expensive in 2024? ›
For example, more modest decreases in used car prices year-over-year have also been reported. In January 2024, the average used-vehicle listing price was $25,328, a 4% decrease from the $26,505 average in January 20239. Prices were also lower in February 2024 than in January by 0.1%6.
How many years until car prices go down? ›
Prices on new cars are expected to drop in 2024 as the industry moves beyond the supply-chain issues that pushed up auto prices during the pandemic, which will gradually ease the prices on used vehicles as well. That's welcome news for car shoppers who have faced record-high prices over the past couple of years.
What is the outlook for the automotive industry in 2024? ›
The automotive supply chain will likely never look like it did pre-pandemic, but inventory levels generally recovered in 2023 and are expected to continue doing so in 2024 and 2025. Car prices remain elevated in 2024 due to inflation but are showing initial signs of decreasing as inventory stabilizes.
What is the outlook for the auto industry in 2024? ›
New-vehicle inventory is expected to reach pre-pandemic norms in 2024, leading to downward pressure on transaction prices for consumers and compressed margins and lower profitability for dealers.
Will cars continue to get more expensive? ›
The bad news is that sticker prices will continue to swell due to higher material and labor costs, and the continuing market shift toward costlier models, especially posh pickup trucks and SUVs.
Is there still a car shortage in 2024? ›
The automotive supply chain will likely never look like it did pre-pandemic, but inventory levels generally recovered in 2023 and are expected to continue doing so in 2024 and 2025. Car prices remain elevated in 2024 due to inflation but are showing initial signs of decreasing as inventory stabilizes.
Are vehicle prices crashing? ›
Month-to-month, prices dropped across major segments, with compact and midsize vehicles declining by 0.7% and 0.1%, respectively. Pickups and luxury cars saw decreases of 1.7% and 1.1%. Electric vehicles depreciated more annually (16.1%) than monthly (0.3%). Cox Auto reported these trends.
