Car prices to plummet amid oversupply

Financial analysts are calling this a simple story of supply and demand, predicting that an oversupply of new vehicles will lead to a price war that pushes those high MSRP’s way down

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If you’ve been in the market for a new or used car, you know that prices have been red hot, higher than we’ve ever seen before.

But, they have to peak just like anything else does. There comes a point where people can only afford so much when it comes to buying a car.

What we’re seeing right now, according to analysts, is a downward trend. Very similar to real estate.

There is already evidence that car prices across the board have fallen. The latest data from Cox Automotive, released in early April, shows that wholesale used-vehicle prices in March fell 2.4% from just a year earlier.

NBC 5 talked to a certified financial planner in Dallas who provided an interesting but relatable way to put this all into perspective.

“So my daughter is a big Taylor Swift fan, and the prices for Taylor Swift concert tickets are amazingly high," said Certified Financial Planner, Rick Salmeron. "Right? Why is that? That's because the demand is so high and there's only so many seats in the theater, there's only so many shows that she's doing, but the demand is so high. So I'm not saying that car prices have run the scale of a Taylor Swift wave, however, they peaked. And now with that peak, comes consumers scratching their chins and wondering do I really want to fork out this kind of dough for a set of wheels?”

Salmeron say that is one factor. A second factor is interest rates.

People cannot borrow as much money or afford to pay off car debt like they used to a year ago, or even a year prior, meaning that the ability to buy the car also limits the demand.

When supply is so great and the demand shrinks, the price will come down. That's just basic economics.

“We're starting to see a reverse trend, and this is natural and this is normal and it's caused by a number of factors,” said Salmeron. “But I think frankly the primary one is the rise in interest rates.”

So the question now is whether it is a good thing that car prices are plummeting.

Salmeron says yes, it is good for consumers and the economy, but not in the long term.

Right now, it’s a nice injection of energy when it comes to sales and growth for the auto industry.

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