When Will Used Car Prices Drop? | Why Are Used Cars So Expensive? |… (2023)

FAQs

Are used car prices expected to go down? ›

In the U.S., the Manheim Used Vehicle Value Index — which measures the prices dealerships pay for used cars at auctions — hit a high of 257.7 in January 2022 and has since fallen to 222.5 in January 2023. Overall, J.P. Morgan Research predicts used car prices will decline by roughly 10% in 2023.

With the limited production and availability of new vehicles, private sellers and dealerships are searching for more used vehicles to supplement their inventories. As the demand for used vehicles grows and supply dwindles, the price of the available used cars continues to rise.

Our analysts tell us that new car shoppers are better off waiting for discounts to kick in in the second half of 2023. Falling used car prices make it a good time to buy used. Even as new car prices begin to drop, they remain elevated.

Prices could drop up 5% for new vehicles and 10% to 20% for used vehicles in 2023, according to a report in November from J.P. Morgan. The basis for the prediction is that demand has stabilized and vehicle inventory is improving.

Although used car prices are finally starting to decline, it could be years before the market returns to a pre-pandemic normal. A recent study conducted by the car insurance comparison site Jerry found that the used car market won't recover in the foreseeable future.

Based on recent industry data, the prices that car dealers pay wholesale for used cars dropped 14.9% during 2022, which means consumers should also start seeing lower prices on the lot. Money expert Clark Howard also predicts the conditions will continue to improve gradually each month throughout 2023.

From 2019 to 2022, used car prices went up over $13,000 for a Toyota Avalon and over $12,000 for a Chevy Traverse, according to data from ISeeCars. “You can't keep having car prices go up. At some point, they get priced out of the average consumer's budget and they just stop buying,” Brauer said.

New-car prices have risen because of increased costs of raw materials and shortages of chips for computers that control a vehicle's gas pedal, transmission and touch screen. The rise in new-car prices has fueled the demand for less expensive used vehicles, according to J.P. Morgan.

Best seasons to buy a car

The time around the New Year, in particular, is regarded as a good time to buy since it benefits from the end of monthly, quarterly, and yearly cycles, falls around a holiday, and you can still find some of last year's models at deep discounts.

Is it better to pay cash for a car or finance? ›

Paying cash for your car may be your best option if the interest rate you earn on your savings is lower than the after-tax cost of borrowing. However, keep in mind that while you do free up your monthly budget by eliminating a car payment, you may also have depleted your emergency savings to do so.

While soaring used car prices are bad for those who can't afford a new car, they may mean 2022 is a good time to buy a car for those with a vehicle to trade in. A high trade-in price means added capital that can help reduce the finance share of purchasing a new car.

After one year, your car will probably be worth about 20% less than what you bought it for. AFTER FIVE YEARS: After that steep first-year dip, that new car will depreciate by 15–25% every year until it hits the five-year mark. So, after five years, that new car will lose around 60% of its value.

The report found that Lexus and Toyota make the most reliable cars, while Jeep and Mercedes-Benz make the ones you can depend on least.

The median new-car price among Cars.com dealers was approximately $42,500 in December — a 10% increase from December 2021 and 18% higher than December 2020.

One of the major drivers of the enormous increase in used car prices over the last two years has been supply chain issues that have limited the stock and delivery of new vehicles. Many predict that the vehicle chip shortage – perhaps the most pressing of the auto supply chain problems – will continue through 2023.

“Over the course of the next two years, we're going to see used car prices retreat back to more normal levels. So by the time we get to 2025, that's really when used prices will bottom,” J.D. Power's Paris said. And even when prices do “bottom out,” they aren't likely to return to pre-pandemic levels.

Will cars be cheaper at the end of the year? ›

Traditionally, the end of the year can be a good time to find a deal on a new or used car, and you can still save some money with time and effort. However, car buyers may not get the same savings in 2022 that they usually see due to a few factors impacting car prices and monthly payments.

According to Edmunds data, December has the year's highest discount off MSRP — 6.1% on average — and the highest incentives. Automakers and dealerships want to close the year with strong sales. They also want to get rid of the prior model-year cars that are taking up space, so they're motivated.

Mondays. Monday can be the best day of the week to buy a new car. Other potential shoppers are often at work, so representatives at car dealerships are focused on anyone who comes in the door.

Traditionally, new model year vehicles start to come out in the fall of the previous year. For example, a 2023 model will debut in the fall of 2022 — and dealerships usually want the old stock gone before the new model arrives.

A new trend we've seen since vehicle shortages started is dealers not accepting cash or even your own financing when buying a new vehicle. The reason? Dealerships make money financing cars. With far fewer vehicles to sell, they want to maximize every dollar of profit, so some will not take your check.

The bottom line

Paying off a car loan early can save you money — provided the lender doesn't assess too large a prepayment penalty and you don't have other high-interest debt. Even a few extra payments can go a long way to reducing your costs.

The most efficient way to pay for your vehicle is to bring a cashier's check, which is more secure than a personal check, and guarantees that the funds are actually available.

A conventional car can last for 200,000 miles. Some well-maintained car models will reach 300,000 or more miles total. The average passenger car age is currently around 12 years in the United States. Choosing a well-built make and model can help extend your car's longevity.

Many experts recommend a five-year loan or less if you can make it work. While a longer term might get you a lower monthly payment, your cost to own the vehicle will likely be higher based on interest paid over a longer length of time.

This is why Edmunds recommends a 60-month auto loan if you can manage it. A longer loan may have a more palatable monthly payment, but it comes with a number of drawbacks, as we'll discuss later. The trend is actually worse for used car loans, where just over 80% of used car loan terms were over 60 months.

Are 2023 vehicles out yet? ›

For example, a 2023 model will debut in the fall of 2022 — and dealerships usually want the old stock gone before the new model arrives. But that doesn't always work out. And if a 2022 model is still on the lot when a 2023 model arrives, dealerships will usually offer heavy discounts on the older model to sell it.

By 2025, 25% of cars sold will have electric engines, up from 5% today. But most of those will be hybrids, and 95% of cars will still rely on fossil fuels for at least part of their power. That means automakers will need to make internal combustion engines more efficient to comply with new standards.

After two years, your car's value decreases to 69% of the initial value. After three years, your car's value decreases to 58% of the initial value. After four years, your car's value decreases to 49% of the initial value. After five years, your car's value decreases to 40% of the initial value.

-- In 2023, the total volume of used vehicles expected to flow through the wholesale market to retailers and buyers is projected to be 31% lower than it was in 2019. “In 2025, it will still be 22% lower, representing a shortfall of about 4 million vehicles that year alone,” the Jerry study noted.