New and used car prices are historically high. Yet again, the Federal open market committee has voted for record-setting interest rate increases (the largest in 3 decades), in an attempt to slow down the purchasing of big-ticket items such as; vehicles as a means of battling record inflation. Automobile purchases are the second largest purchase most people make in their lifetimes, and qualifying for these purchases has been astoundingly easy to do this past year.
We may think reeling in the easy-to-get lines of credit is the answer, but that is not what is pushing high car prices. SUPPLY CHAINS ARE. With the shortage of Micro-chips, the manufacturers are pressing more on the build of products that bring more profit and cutting on the production of less profitable products.
"SUPPLY CHAIN PROBLEMS, NOT EASY CREDIT, MADE CARS EXPENSIVE"
"Despite higher interest rates, we are not seeing a buildup of New vehicle supply" According to Cox Automotive Cheif economist Jonathan Smoke. (Cox Automotive is the parent company of Kelley Blue Book KBB).
"This could possibly change with the uptick in production but this has not happened yet," Smoke says, "So as a result, we will continue to see higher prices due to inflation, fewer incentives and limited discounting".
"BUYING NOW WILL SAVE YOU MONEY"
Here's my take. With the average cost of a vehicle today being $47000, we will use this number for a little math exercise.
Let's say you buy a car for $47000 at 4% interest today. That would give you a payment of $866 per month (Not including tax, license, or any of the extras). Now, the same car at 6% (the fed has already raised taxes 2% in a very short time) your payment will be $909 per month. THAT IS $2580 more money over the life of the loan. In other words, you need the price to drop $2580 (no one sees this happening) to even break even. What do YOU RISK waiting? you're likely going to get stuck with the higher price and higher interest rate.
I will leave you with this. In the 1980s the fed hiked the rate by 4% in just 5 months, in an attempt to battle double-digit inflation. At a 4% higher rate, your payment from our original base is going to be $953 per mo. The total cost of your $47000 car (not including tax and extras), will be $57,180. That's $5220 over the life of the loan.
You are welcome to wait for the unlikely event that the price of the $47000 car drops to $41780 to break even. Or you can "think about it" as the interest rate continues to make the cost of your car increase even more, but in my opinion, if ya need a car or truck NOW IS THE TIME TO BUY!
sources KBB, Cox Auto, Fed
