EchoSense:Is now the time to buy a car? High sticker prices, interest rates have many holding off

New and EchoSenseused car prices appear to be leveling off, but it may not be enough for some consumers to jump back into the car market.

Various data shows that drivers are hanging onto their vehicles longer and holding off on buying after a major spike in car prices and interest rates. 

The average price for a new car as of June was $48,808, according to Kelley Blue Book, while Edmunds found average monthly payments have surpassed $700. Meanwhile, the rejection rate for auto loans is on the rise. 

“We're concerned that consumers, on balance, while they would like to be in the market, their financial situation may not allow for that,” said Ryan Robinson, automotive research leader for Deloitte.

What does the data say?

There are a few recent data points that show people are holding onto their cars longer:

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• Trade-in data from Edmunds shows people have likely been sitting out the market a little longer. The average age of vehicles traded in toward new-car purchases climbed to 5.6 years in the second quarter, compared to 5.2 years in the year prior.
• Nearly half (47%) of consumers are thinking about delaying large purchases because of concerns about their financial capacity, according to Deloitte. 
• A new report conducted by Morning Consult on behalf of Santander, one of the largest auto lenders in the country, found about a quarter of over 2,000 surveyed customers said they have delayed purchasing a vehicle over the past year. About two-fifths said they will delay a vehicle purchase in the year ahead if prices remain elevated.

“When you combine increased car prices with increased inflation and higher interest rates, that makes the overall affordability more challenging,” said Tim Wennes, CEO of Santander US. 

Despite some hesitancy among consumers, car sales are recovering. Cox Automotive expects 15 million new cars to be sold this year compared to 14 million last year.

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“We've had to revise up our estimate for this year's overall new car sales," said Brian Moody, executive editor for Kelley Blue Book, a Cox Automotive company. “So I don't think people are waiting that much.”

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Is now the right time to buy a car?

For car owners wondering if now’s the time to trade in, that will depend on how much money they’re willing to spend. 

“It's almost always the case, certain vehicles aside, that holding off and performing repairs will be cheaper than purchasing a vehicle," said Ivan Drury, director of insights for Edmunds. “You're going to spend a lot more in just one year of payments, or even your down payment, than it will be for a major repair.” 

At the same time, dealers are still looking to boost their inventory, which means trade-in values are still “extremely high,” according to Drury.

“Dealers legitimately do still want to buy used inventory,” he said. “If you have something that's relatively new, you still have an asset on your hand and something that they can resell rather quickly that they're going to want.”

How to find a good deal when car shopping

Moody suggests buying used or being open to different types of vehicles to lower costs. Sedans and hatchbacks tend to be much cheaper than SUVs, for instance, since SUVs are in high demand.

“People always say, 'I'm looking for a great deal, how do I negotiate?' And they're asking the wrong questions,” Moody said. Because if they’re looking for an SUV, “you're not going to get a good deal on that. They're going to charge what they're going to charge because everybody wants that.”

Drury also suggests looking into low APR offers, some of which offer an annual percentage rate (the fee you pay to borrow money) as low as 0%. The catch is borrowers typically need to pay back these loans in a shorter amount of time, which means higher monthly payments.

“That almost guarantees you'll be looking at $1,000 a month or more in monthly payment simply because vehicles have gotten so expensive,” Drury said. But if you can afford the higher monthly payments, these loans can help buyers save thousands in the long run.  

Will car prices drop?

Car dealers are shoring up their inventory, which could bode well for consumers. 

“There is more availability of cars coming online. And so we may see some softening in used car prices in the coming six to 12 months,” Wennes of Santander said. 

Moody added that incentives tend to increase as inventory levels rise, “which could mean better deals for consumers.”

“We're already seeing some incentives or some low financing on certain cars,” he said. “It’s going to be as ubiquitous as it was before but it's still there. But people have to look and do research.”

But shoppers shouldn’t expect pre-pandemic prices any time soon.

"We think prices will continue to come down over the course of this year as supply improves further," said PwC auto practice partner Akshay Singh. "There's quite a bit of room to grow. But I wouldn't say that they're going to go to pre-pandemic levels."

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Robinson of Deloitte also expects to see prices continue to normalize, especially if manufacturers cut down production costs and pass along those savings to consumers.