New car prices may finally start to drop in the coming months – but don’t expect to pay much less on a monthly basis due to higher interest rates.
“To our customers who refused to pay over the sticker for a new car, your patience is about to pay off,” Morgan Stanley auto analyst Adam Jonas wrote in a note to clients on Monday. Thanks to the sales freeze and a 17-month high in vehicle supplies, “deflation” may finally be coming for new car prices, Jonas said.
In a separate report released on September 28, JD Power also predicted lower list prices could come in the coming quarters thanks to rising interest rates, higher vehicle availability and worsening economic conditions that are likely to affect overall demand.
The declines, whatever they look like, will be welcome to car buyers. According to JD Power, new vehicle prices remain near record levels: In September, the average transaction price was expected to reach $45,622 – a record for the month, up 6.3% from a year ago and the fourth highest for any month on record. August set the record, with average prices at $46,259, JD Power said.
And the lower list prices would come at a time when interest rates for borrowing to buy cars are at levels not seen in 1[ads1]5 years – almost 6% on average.
The result is that lower income and lower credit quality buyers will be eliminated from the market, according to Cox Automotive, while luxury buyers will remain.
“New cars may finally become more accessible just when most Americans can no longer afford them,” Cox Chief Economist Jonathan Smoke said in a note published Monday.
Instead, you might want to consider the used market, where dealers just saw the biggest one-month drop in prices paid at auction since the pandemic began, according to Kelly Blue Book.
The average used car sold for $28,061 in August, the most recent month for which data is available — a decrease of $158, or about 1%.
Analysts at car group Edmunds.com also suggest that customers consider settling for a larger monthly payment to avoid paying more overall.
“Consumers looking to save where they can need to think about the big picture when it comes to financing car purchases,” Ivan Drury, Edmunds’ director of insights, said in a release Monday. “It can be a tough pill to swallow agreeing to a much larger monthly payment, but if your ultimate goal is to save money and stay out of the red, you could save yourself thousands of dollars by taking this step – just make sure the monthly payment you agree to is still within your means.”