While new car prices have come down slightly, interest rates on the rise may make the total cost for a new car even higher.

“Most people aren’t buying a car in cash,” said Jordan Argiz, partner at BDO and the national co-lead of Auto Dealerships. “Anyone who has to finance it has to expect a higher monthly payment than previously.”

New vehicle prices hit a record over the summer months, and interest rates are the highest they have been in a decade, too, according to Economic Research at Federal Reserve Bank of St. Louis.

For both new and used vehicles, prices are still near or around record highs, said Matt Degen, senior editor at Kelley Blue Book. The average price for a new vehicle is now at about $48,280 — roughly $20 lower than the record that was set in August.

“That’s going to be pretty eye-popping for a lot of folks,” he said. “On the used car front, we’re looking at prices around $28,000 for used.”

Those U.S. averages likely won’t differ from Florida’s pricing, Degen said.

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Vehicle pricing, interest rates

“Back when the recession hit, you saw some leading up to historic highs leading up to ’08 and ’09 and saw a bottom hit,” Argiz said. “The pricing on the vehicles is one thing, but there has been a lot of spending and hyperinflation with interest rates being raised pretty aggressively for the past year.”

Prices likely won’t drop to pre-pandemic levels any time soon, Argiz said.

“The demand for used cars has cooled off a lot,” Argiz said. “Interest rates on used cars are substantially higher than on new cars. That has led to fewer used vehicles purchased with financing.”

The result is that lower income and lower credit quality buyers are being eliminated from the market, according to Cox Automotive, while luxury buyers and those who are paying cash will remain.

Degen predicted the market is going to stay tough for buyers over the next few months because of the higher interest rates.

“Money is going to be more expensive to borrow, and that’s going to have its own set of challenges,” he said. “It’s a domino effect.”

Inventory status

Some brands “are running really lean, especially on some of the more popular models,” Degen said.

“Overall, broadly speaking, inventory is pretty lean because of the supply chain challenges and microchip shortages,” he said. “You may have a tougher time in Florida, post-[Hurricane] Ian and with [Tropical Storm Nicole]. We ballparked about 50,000 vehicles destroyed because of Ian, and you’re going to have folks needing to replace those cars.”

Crossovers have been one of the most popular types of cars, causing lower inventory for them, but Degen said the sedan market saw a bit of a bump as people sought more fuel-efficient vehicles with gas prices on the rise.

Argiz estimated most dealerships had about 35 days’ supply or under. By comparison, the five-year average was about 50-55 days of supply, he said.

“As supply chain increases and gets better, inventory will increase over the next several months, and there will be some softening of the pricing in the market,” Argiz said. “It’s just a matter of when — six months, 12 months, 18 months, when? If the interest rates continue to rise, people aren't going to want to purchase those big-ticket items, like cars, as much.”

Predicting what the market is going to do over the next few months is a challenge, Degen said, because of how rapidly different variables can affect pricing and inventory.

“Dealerships are in a bind right now because they can’t sell what they can’t get [in],” he said. “You’re not going to see a whole lot of discounting going on right now. Most dealerships don’t need to because inventory is pretty lean.”

Outlook for 2023

In the absence of discounts at the moment, some buyers are responding to higher rates by waiting for better days ahead or looking at older models dealerships are trying to ditch to bring in the new.

The end of the year is traditionally when vehicles are discounted to make space for the newer models, Degen said. But vehicles from certain manufacturers remain in such short supply so not every dealership will run those usual holiday specials.

“I think we’ll still see some cars being bought for holidays,” Degen said. “No holidays are canceled, and no car-buying for holidays is canceled.”

There are some vehicles you’ll see some deals on, especially as we get to the end of the year and see model changeovers, Degen said. Buyers might be able to get a deal on the outgoing version.

“If you are vehicle shopping at this time, it’s probably a better time to do it than a few months ago, but again, you’re going to have to consider interest rates,” he said.

Degen advised people to shop not just for a car but for their financing options as well.

“The message for shoppers is have patience, do your research,” Degen said. “Go to a site like KBB and shop around. If there’s any silver linings coming out of the pandemic, it has changed the way people can buy cars. They can do a lot more online now, even buy cars from out of state and have them shipped in.”

This article originally appeared on Florida Times-Union: Car prices hit record highs in 2022, but are starting to come down