When will car prices begin to fall again?

If you’ve noticed anecdotally that car prices seem to have climbed since the beginning of the COVID-19 crisis, you would be right to think that. The This is Money website, for instance, just recently reported that the typical cost of a used car is now about £4,000 greater than was the case a year ago.

This has made life more difficult for buyers, as even previously low-cost cars have become offputtingly expensive for some.

This raises the question: when might we see prices begin to decline to more affordable levels again? We thought we’d take a look at some of the key factors.

What are the reasons for the increase?

A number of factors have caused the recent rises in prices, which have led to a ‘perfect storm’ across both the new and used car markets. And it’s certainly not just a phenomenon seen in the UK; it has also been reported that the average used car price in the United States, for example, is now some 41% higher than it was before the pandemic.

• Some car manufacturing plants have closed as a result of the pandemic. This has led to fewer cars being produced than normal
• Factories that remained open were hit with slow production due to COVID safety rules and workers isolating
• Computer chip shortages have meant a slowdown in car production amid longer waits for deliveries

These reasons have led to a double issue for car buyers and manufacturers. The cost of manufacturing has risen and there is a higher demand, so new car prices have increased.

With the shortage of new cars and computer chips, many consumers are looking to used cars instead. There are various used car options available in Essex and the surrounding counties, but they might be harder to find than they once were.  

When will car prices begin to fall again?

Many scenarios have been mooted as to when there may be a stabilisation in new and used car prices.

Studies have indicated that much depends on how the supply and demand dynamics change over the next 12 to 18 months.

If supply remains low and demand remains high, it is likely that prices won’t return to pre-pandemic levels until the end of 2023. However, if supply rises, then this can be shortened by as much as 12 months.

One positive factor is that the global computer chip shortage seems to be resolving itself. This will mean more new cars can be produced which should, in turn, lead to a resolution in the price situation.

What should car buyers do until then?

As there is no definitive answer to the question of when car prices will start to drop, the best advice seems to be that you should buy now if you can.

Prices may still rise, so finding a car you want at the right price might continue to become more difficult for the foreseeable future, instead of easier.

For car sellers, the best time is now, as you never know when prices will start to drop.

Conclusion

There is no doubt that there is a boom being seen in the new and used car market. Whether you are buying or selling, the best advice seems to be to do it as soon as possible before the market starts to return to pre-pandemic levels.