When Will New and Used Car Prices Start to Decline? A Deep Dive Into Expert Forecasts

New and used car prices have skyrocketed to record highs over the past couple years due to inventory shortages and red-hot demand. With affordability stretched thin for many buyers, a major question looms - when will pricing finally start to come back down to earth?

Industry analysts and experts have varying outlooks on potential timing for declines in both new and used vehicle markets, the influencing factors at play, and how much relief buyers might see after years of runaway price increases. This comprehensive guide examines the expert projections in depth, what's driving the expected trends, and tips for getting the best deal when purchasing.

Consensus Forecast Calls for New Car Price Drops to Materialize in 2023

Most leading industry observers agree that new car prices are likely to show moderation beginning at some point within 2023. However, predictions vary regarding the severity and exact timing of declines.

• Auto market research firm J.D. Power, along with their partner LMC Automotive, foresee new vehicle prices decreasing 2.8% on average over the course of 2023.
• However, J.D. Power doesn't expect pricing relief right away in 2023. They project used car prices will remain elevated in Q1 before declines hit.
• Research firm Cox Automotive is slightly more conservative in their outlook, calling for a 2.5% drop in new car pricing next year on the whole.
• Analysts at S&P Global Mobility predict an even steeper 5% reduction in new vehicle prices by the end of 2023 as supply and demand rebalance.
• Investment bank Morgan Stanley sees a gradual overall decline of 1-5% through 2023. However, they don't foresee a full reversion to pre-shortage pricing levels yet.

While projections differ somewhat, most industry thought leaders seem aligned in the view that 2023 will be the year the long run-up in new car prices finally begins to reverse. The pace and severity of declines remains uncertain and open to debate.

Second Half of 2023 May Feature Steepest New Car Price Drops

Further analysis from market research firms points toward the most significant new vehicle price reductions materializing in the latter portion of 2023 into early 2024 as supply levels catch back up to demand.

• Both Cox Automotive and J.D. Power note that new vehicle inventories are not expected to meaningfully improve until the second half of 2023.
• This implies larger declines in new car prices will hit starting in the fall of 2023 through winter 2024 as unsold inventory swells on dealer lots.
• Earlier in 2023, production cuts by automakers will likely limit any major price drops in the near term.
• Incentives and promotions typically increase late in the model year as well, bringing year-end savings opportunities.

Therefore, new car buyers may find the best trade-in value and negotiating leverage starting in late 2023 and heading into 2024. However, the optimal timing will ultimately vary across different brands, vehicle segments, and geographic regions.

Used Car Prices Also Forecast to Moderate After Record Increases

Similar to new cars, used vehicle values saw even more dramatic price surges over the past two years amid short supplies. Analysts predict a peak and downward price correction approaching for the used market as well.

• Used vehicle valuation and sales data source Manheim forecasts used car wholesale prices will drop around 12% from June 2022 peaks through the end of 2023.
• Falling wholesale values typically precede subsequent declines in retail used car pricing with a lag.
• This wholesale trend points toward eventual retail price drops of 10% or more in 2023, according to Manheim.
• However, Cox Automotive has a more restrained outlook for used cars, projecting a 5-10% retail price decline in 2023.

The pace of used car price gains has clearly decelerated, but retail prices remain near all-time highs for now. Experts feel the used market is overdue for a cooldown, but differences in opinion persist on how quickly and significantly the pending price correction will play out.

Why Are Car Prices Expected to Retreat from Their Highs?

Several underlying factors in the auto industry point toward easing new and used car prices in 2023 and beyond after years of runaway growth:

Improving Automotive Supply Chains Ramping Up Inventory

• Major automakers continue working to resolve pandemic-related parts shortages, production cuts, and logistics bottlenecks.
• Chip supplies are rebounding, allowing brands to increase assembly line speeds and raise overall production volumes.
• This is incrementally allowing depleted new car inventories to be replenished at dealerships nationwide.

Automakers Aggressively Increasing Vehicle Production

• Toyota, GM, Hyundai, Ford, and other automakers all plan to significantly raise U.S. production levels during the 2023 model year.
• New North American assembly plants coming online for brands like Toyota will add capacity.
• This boost in domestically built vehicles will help take pressure off inflated car prices.

Dealer Order Backlogs Finally Beginning to Clear

• New vehicle order backlogs at dealerships are starting to modestly improve at many brands as production increases.
• Reported wait times for factory orders have peaked and are slowly beginning to decline week-by-week and month-by-month.
• This reduction in historically long wait lists will lessen the scarcity premium that has contributed to spiking new car prices.

Consumer Vehicle Demand Dropping as Affordability Stretches

• The surge in new car prices has pushed more cost-conscious buyers out of the market due to worsening affordability issues.
• High interest rates on auto loans further reduce many consumers' purchasing power and budget.
• Less competition among buyers may allow dealers to make better deals.

Used Car Pricing Outlook Remains Uncertain Due to Unique Factors

The used vehicle market faces some different variables that make experts' outlook for pricing trends more uncertain:

• Auction wholesale used car prices dropped sharply in June and July 2022. This indicates retail price corrections should follow.
• However, retail used car prices have remained resilient so far and have not yet fallen significantly despite declining wholesale values.
• Sustained high demand among used car buyers may continue to prop up retail pricing in the near term.

The interplay between used car supply and consumer demand makes predictions tricky. But analysts feel the used market is overdue for a cooldown after its epic multi-year price run. The unknown is exactly when and how sharply retail prices will turn.

Used values may also remain elevated compared to pre-pandemic years due to demographic trends.

Best Time to Buy a Car: Strategic Timing for Maximum Savings

Buyers don't have to passively accept whatever inflated car prices they find. By carefully timing a purchase around market conditions, consumers can minimize costs:

• Late 2023 into 2024 may be an opportune window as inventories potentially reach full capacity and more negotiation power shifts back to buyers.
• October-December is often the best timeframe for compelling year-end deals on remaining new model year inventory automakers are eager to sell.
• At the very end of a month is another ideal target, especially for used cars, as dealers work aggressively to meet sales quotas.
• Avoid early 2023 if possible, as new car supplies will still be constrained and full-year production limits discounts.

No matter when you eventually purchase, expansive comparison shopping across brands, models, and dealerships to find the best car at the lowest area market price is essential. The car shopping process requires persistence, but the potential savings are huge.

While the unprecedented surge in new and used car prices appears it may finally ease somewhat in 2023, an imminent return to "normal" pre-shortage pricing seems unlikely. But buyers willing to play the waiting game patiently and pounce on the best deals stand to win big.

FAQs

When will new car prices start to drop?

Experts forecast new car prices declining 2.5-5% in 2023 with steeper declines in the second half of the year.

How much could used car prices decline in 2023?

Used car prices could drop 10% or more in 2023 according to industry forecasts, with the biggest declines likely in late 2023.

What should I do if I need to buy a car soon?

If you need a car right away, be prepared to still pay inflated prices. But you may be able to negotiate a better deal than in 2022.

Will car prices go back to what they were before COVID?

Prices will come down from 2022 highs but likely not return to pre-pandemic levels due to lingering demand and supply constraints.

When will it be the best time to buy a car?

Late 2023 into 2024 is forecast to offer the best deals as inventories swell and manufacturers compete for sales.

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