Between 2021 and 2022, car prices reached an all-time high because of factors related to the COVID-19 pandemic. Fortunately, 2023 is going to be the year that prices finally drop.
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.
In this article, I’ll take a close look at the current used and new car markets as well as indicators about when car prices will go down.
New and Used Car Prices in 2023
Since the pandemic hit the United States, the prices of new and used cars have soared to all-time highs. While prices are slowly beginning to drop, the vehicle market isn’t expected to stabilize all at once.
Several things led to the problems. Clark cites factory closures early in the pandemic and the ongoing spread of COVID that affected workers and slowed assembly lines. And then there’s the ongoing computer chip shortage. He says the result has been record-high prices for both new and used cars.
However, as we head into 2023, Clark says that used cars are starting to come down in price. It’s not a straight line, but there’s a decline.
“If you are thinking about buying a car this year, I want to tell you the market conditions are steadily improving for buyers,” Clark says. “[Prices] are getting steadily better, and throughout ’23, every single month you’re going to see the cost of used vehicles especially getting better.”
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?
Historically, buying a used car has been a great way to save money compared to buying a new car. However, Clark advises against buying a car at all right now if you can avoid it. The longer you can wait to buy, the more likely you’ll be to see lower prices.
Fortunately, used vehicle pricing is finally starting to drop.
“The greatest movement is pricing has been in the used vehicle market,” says Clark. “This is really good news for your wallet because used vehicle prices at one point went up 70%! Since that peak, the prices have been going down month by month by month.”
Clark expects used car prices to continue gradually easing each month throughout 2023.
Recently, auto wholesaler Manheim released new data revealing the used vehicle value index through December 2022. In the graph, you can see prices continuing to drop significantly. However, we still have a long way to go before the vehicle market completely stabilizes. Fortunately, prices are finally heading in the right direction.
In the past, Clark has predicted that the market would gradually improve throughout 2022, and now we’re finally starting to see some lower prices. While this decline will continue gradually month to month, it’ll likely still be a while before we see the used vehicle market return to near-pre-pandemic prices.
“Now it doesn’t mean that you’re going to go out and suddenly find used vehicles back at the prices they were in 2019 equivalent,” Clark warns. However, prices will get a little better each month.
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 2023. If you can wait a full year, you’ll be even more likely to get a deal (or at least a fair price).
“The whole thing is going to come gradually, steadily back into equilibrium,” says Clark. “That’s why, unless you’ve got to get a vehicle now, don’t!“
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.
Following the pandemic, KPMG published a study that revealed U.S. dealer inventories had fallen to historic lows by July 2021 and new car prices soared past MSRPs. At the time, it was expected that the market would balance out and prices would start to drop when automakers were once again able to produce a normal supply of new cars.
Now, new car inventory is building back up and new car prices should finally start dropping as well. Of course, Clark says this isn’t going to happen overnight and the supply of new cars is still very low. However, manufacturers are starting to recover from supply chain disruptions and they’re getting more of the parts that they need.
“Automaker by automaker, they’ve adapted. They’re building vehicles. They’re sending them to dealers,” says Clark. “Where dealers had no new cars on their lots, there’s still low inventory compared to normal numbers, but the new vehicle thing is gradually improving.”
Clark goes on to say that the prices of new vehicles are really going to start getting better in the second half of 2023.
Clark’s Top 5 Tips on Buying a New or Used Car Right Now
If you’re currently shopping for a new or used vehicle, be sure to take the time to comparison shop in order to avoid overpaying. While it may take a little longer to shop for a car, the payoff could be the savings of thousands of dollars.
Here are five tips from Clark Howard on buying a car in the current market:
- Shop in a wider area than you normally would. A lot of people buying new vehicles are now traveling hundreds — or even thousands — of miles to buy one because different dealers are handling the shortage of new vehicles differently. With relatively cheap one-way airfares available now, you can buy a car from a dealer hundreds of miles away and fly out to get the vehicle. If you’re looking for a specific car, Clark recommends looking up all the dealers that sell the car within 500 miles and then visiting their websites to see what inventory is coming in. Then you can email different dealers to find one that isn’t marking up prices over MSRP. Clark followed this method himself and saved $23,500 on a vehicle by buying it from a dealership 90 minutes away from his home.
- Don’t pay more for a used car than you would for a new car. Clark’s historical advice about buying a one- or two-year-old vehicle doesn’t really hold right now, he says. You may be able to find a new vehicle for less than you can buy a used one. Plus, you won’t have to worry about the car having problems or bad history.
- Be patient. You may need to order a car and wait for it to come in. Last year, Clark waited six weeks for a vehicle he ordered, which he says wasn’t out of line with the current market conditions at the time: “If you order exactly what you want from a dealer who isn’t marking prices up over MSRP, you’ll get the vehicle you want without the added on stuff, and you can save a substantial amount of money by being patient and waiting.” Along the same lines, avoid buying a car that costs more than you’d budgeted with features you don’t really need simply because it may be available the same day.
- When it is time to buy, shop online and join a credit union. Clark says that when you do go to buy, buy your vehicle online not at the dealership, warning that getting your financing through a dealer will cost thousands more. You’ll find much cheaper financing on a new or used vehicle at a credit union than what you’re going to get from a bank or a car dealer.
- Don’t buy right now if you can avoid it. If you have to have a new vehicle as soon as possible, follow the tips above. However, Clark recommends holding off a bit longer on buying a new or used car until the prices drop if at all possible. “This is the time to take your time and wait for the market to settle down,” says Clark. “If you don’t have to have a new or ‘new-to-you’ used vehicle right now, don’t buy one.”
Right now is still not a great time to buy a car. However, the conditions are finally beginning to improve. Prices should continue to trend downward gradually each month throughout 2023.
“You know, prices went up like a rocket and then they stayed up. Then the used ones: The roller coaster reached its peak, and instead of coming back down where your stomach meets your throat, they’re coming down really imperceptibly slowly. They’re steadily coming down on the used vehicles. The new vehicles will trend down as well, and time is your friend. Give it time and then you buy.”
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.