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Used-car prices are expected to fall by up to 20% in 2023 as inventory levels off.

For more than a year, car buyers have faced exorbitant prices, owing in part to high demand and limited inventory. However, 2023 may bring some relief.

Prices are expected to fall slightly as demand stabilises and inventory improves. According to a November report from J.P. Morgan, new vehicle prices could drop by up to 5%, and used vehicle prices could drop by 10% to 20%.

According to Tyson Jominy, vice president of data and analytics at consumer research firm J.D. Power, new-car prices will fall between 2% and 10% next year.

“As inventory increases, we expect to see consumer prices fall, so it’s mostly good news,” he said, adding that buyers can expect to see an increase in the supply of on dealer lots.

According to U.S. Bureau of Labor Statistics data, used-car prices have fallen after surging in 2021, with a recent drop of more than 3%. According to Kelley Blue Book, the average used car sold for $27,156 last month, a 1.5% decrease from October.

Meanwhile, new-car prices remain historically high. According to Edmunds, the average transaction price in November was a record $47,681. However, the average paid price fell below the average manufacturer’s suggested retail price, or MSRP, for the first time since July 2021. This indicates that some buyers are able to negotiate a lower price for vehicles.

However, rising interest rates may offset the drop in vehicle prices, implying that Americans who finance their vehicles may not see as much, if any, relief.

“It’s difficult to predict how it will come out in the wash,” Jominy said. “However, when these prices fall, it should be good for consumers overall.”

According to Edmunds, the average interest paid over the life of a new car loan reached a record $8,436 in November, and the average interest paid over the life of a used car loan reached an all-time high of $10,204.

Why are automobile prices so high?

Increased raw-material costs and chip shortages for computers that control a vehicle’s gas pedal, transmission, and touch screen have caused new-car prices to rise. According to J.P. Morgan, the rise in new-car prices has fueled demand for less expensive used vehicles.

“We estimate that half of the increase in new vehicle prices is due to higher input costs, including raw material costs,” said Ryan Brinkman, lead automotive equity research analyst at J.P. Morgan, in the report.

According to Edmunds data, prices for traditionally cheaper options such as compact and midsize cars have risen this year due to consumer demand for affordable vehicles.

Factors like the Ukraine war, which has exacerbated supply chain issues, and the chip shortage will ultimately determine how much prices fall, according to Benjamin Preston, an automotive reporter at Consumer Reports.

When is the best time to buy a car?

According to Edmunds, the final months of the year—October, November, and December—usually see the deepest car discounts, and deals on new cars usually coincide with the introduction of new models, making current cars and trucks less desirable.

According to CARFAX, December has the best deals, with the biggest discounts available on New Year’s Eve. If a consumer needs to buy a vehicle sooner, there are other good times to do so.

The end of the month, the end of the model year, and holiday weekends are also popular times to buy a new car.

If buyers can wait, they can expect lower prices next year than they do now, according to Jominy. However, shoppers do not have to wait for a good deal because many automakers are now offering incentives.

Consumer Reports advises customers to buy a car only when they need one, according to Preston.

“If you need a car right now, you should get one,” Preston advised. “You can certainly help yourself by conducting extensive research and determining what you want and need. Then sort of looking for alternatives.”

How can I get the best deal on a car?

The chip shortage and record-high prices have altered the typical forecast for 2022 car shopping, but buyers still have time to get a good deal.

When looking for a vehicle, experts advise shoppers to cast a wide net and be flexible. Buyers should also bargain at the dealership, starting with the sticker price. (For more information on snagging a year-end car deal this December, click here.)

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