When Will Car Prices Go Down?

Car prices have reached an all-time high since the COVID-19 pandemic began. In fact, in November 2021, the average used car cost 41% more than pre-pandemic prices.

Fortunately, car prices could return to normal sometime this year. In fact, money expert Clark Howard says the conditions will gradually improve throughout 2022.

In this article, I’ll take a close look at the current used and new car market as well as indicators about when car prices will go down.

New and Used Car Prices in 2022

Since the pandemic hit the United States nearly two years ago, the prices of new and used cars have continued to soar.

Several things led to the current vehicle market. Clark cites factory closures early in the pandemic, ongoing spread of COVID that affected workers and slowed assembly lines down. And then there’s the ongoing computer chip shortage. He says the result has been record-high pricing on both new and used cars.

“Whether you go to the new car lot where you’ll find nothing or the used car lot where you’ll find shocking prices, it is the worst time to buy a vehicle since 1946.”

Fortunately, the chip shortage is starting to get better a little at a time, and car prices are expected to normalize soon, hopefully by the end of 2022 or early in 2023.

Below, you’ll find more information on when prices are expected to drop for both used and new vehicles.

When Will Used Car Prices Go Down?

Buying a used car is often a great way to save money compared to buying new. But Clark says now is not the time to find a deal.

“We are in a position now where the shortage of new and used vehicles is so severe that the cost of used vehicles all around the world is setting records. In the US, the average used vehicle pre-pandemic cost $17,000. Today, it costs a whisker under $30,000 based on the most recent industry data.”

So when will used car prices drop? While it's difficult to say for certain, Clark expects used car prices to gradually ease throughout the year. 

KPMG, one of the Big Four accounting firms, published a recent study on used car prices that concludes it's difficult to predict when the market will stabilize. In the study, KPMG explored four possible scenarios for when supply and demand will return to equilibrium.

In each of the four scenarios, the vehicle market returns to equilibrium between October 2022 and October 2023. Three of the four scenarios echo Clark's prediction that the market will gradually improve throughout 2022, which means we'll likely see lower prices on used cars later in 2022 especially during the fourth quarter.

For now, if you have a used car to sell, Clark recommends that you do it sooner rather than later to get the best price. But if you’re looking to buy a used car, hold off for as long as you can into 2022. If you can wait until early next year, you’ll be even more likely to get a deal (or at least a fair price).

When Will New Car Prices Go Down?

The trend of new car prices has gone hand-in-hand with used car prices. Due to the semiconductor shortage and other factors, new car production has slowed significantly. With fewer new cars available and no decrease in demand, prices began rising.

According to KPMG's recent study, U.S. dealer inventories had fallen to historic lows by July 2021 and new car prices soared past MSRPs. It's expected that the market will balance out and prices will start to drop when automakers are once again able to produce a normal supply of new cars. 

But Clark says this isn’t going to happen overnight and the supply of new cars is still very low.

“If you drive past new car dealerships, you’ll see that there are no new vehicles at all on those lots. Any new cars that are being generated are already spoken for before they even release them from the factory once they get the chip that vehicle needs.”

Fortunately, the semiconductor chip shortage is beginning to work itself out. As production of new cars begins to pick back up, we should start to see a decrease in prices for both new and used cars.

Based on Clark's predictions and recent industry data, this could begin to happen throughout 2022 and the market may normalize by the end of this year or early next year.

Final Thoughts

Right now is still an awful time to buy a car. However, the conditions should begin to improve throughout the year.

"The vehicle market won't just all in one day be healthy, but the conditions will gradually improve through 2022," says Clark. "The extreme distortions in the used vehicle market will ease before the new vehicle market comes fully into equilibrium, but those ultra spiked used car prices will ease gradually through the year and the new car prices will be normalized by either the fourth quarter of this year or the first quarter of 2023."

The longer you can wait this year to buy a car, the better. If you do need to buy a vehicle right away, be sure to read Clark's take on whether you should buy a new or used car in the current market.

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