Car Prices Are Still Sky-High -- Here's Why They Aren't Coming Back Down

Drivers in the market for a new or used car should expect to pay up.

If you're struggling to find an affordable vehicle, whether you're looking to buy new or used, it's not just you. Car prices have been soaring for months on end, and there doesn't seem to be any relief in sight.

The average new car sold in December 2022 commanded an astounding $49,507, reports Kelley Blue Book. Given that auto loan rates are up right now, buying a new car has the potential to result in very costly monthly payments.

Not only that, but the more you pay for a car, the more your auto insurance is likely to cost. Your auto insurance company knows it's bearing the risk of having to replace your car when it writes your policy. So the more expensive your vehicle is, the higher your premiums are apt to be.

But are today's ultra-high car prices sustainable? Or will car prices come down in time?

The answer is that eventually, car prices are likely to cool. But they're unlikely to dip tremendously in the near term for a few reasons.

1. Supply chains are still backlogged

Many people remember supply chains getting battered across the board in 2021. Thankfully, we're largely past that point in most industries. But the auto industry seems to be lagging. And any time you have a situation where there's not enough supply of a certain commodity, its price tends to rise.

2. Manufacturers are focusing on higher-end cars

Since auto production has slowed down, car manufacturers have to focus their efforts on those vehicles that will result in the most profit. And while that makes sense, it's bad news for consumers.

NPR reports that Nissan, for example, has cut production of the Versa, one of its least expensive cars, by 78%. Meanwhile, it's boosted production of its Altima and Pathfinder, which are more expensive vehicles.

3. There's a lot of demand for used cars

Although used car prices are down 13.6% from a year ago, according to February's Consumer Price Index, they're still not cheap. Because new cars have been so expensive to purchase, there's been strong demand for used vehicles. And when we go back to the basics of supply and demand, it explains why used cars remain costly.

Choose your next car carefully

Owning a vehicle is a big expense. It's in your best interest to try to keep that expense as low as possible, especially at a time when inflation is also driving living costs upward.

This doesn't necessarily mean you have to buy a used car. But in the course of buying a new one, don't be lured by fancy features and unnecessary frills. Those might drive the cost of your purchase up by thousands of dollars -- and lead to higher auto insurance premiums.

Remember, too, that the more expensive your car is, the more you might spend maintaining it. So do your best to set priorities and aim for a vehicle that's safe and comfortable, and try to focus less on things like heated seats and built-in sound systems.

What's more, if you're able to hold off on a car purchase, it pays to do so. That could mean having to deal with an older vehicle a bit longer, but holding out for a year or two could result in a much lower vehicle purchase price -- and much lower car payments to work into your budget.