Car Prices May Not Drop Next Year—But They May Get a Bit More Affordable. Here’s Why.

It could be a shrewd financial move to replace your car—next year.

Buying a new vehicle may be a bit more affordable by late 2026, Oxford Economics said Wednesday. Car companies may ease up on price increases by then, the economic consulting firm said, while lower borrowing costs and a tax benefit may also benefit buyers.

That may offer a measure of relief to Americans who have felt uncomfortable with car prices since they shot up some 9% during the pandemic, according to Cox Automotive, which provides research and services to auto companies. Households are expected to buy 2% to 3% fewer cars in 2026 than in 2025, according to Oxford and Cox.

“It’ll take time before affordability improvements resonate with consumers’ psyche,” Oxford said in a report. “Affordability’s been improving since 2023, and yet consumers remain downbeat about their assessment of whether it’s a good time to buy a vehicle.”

The average new vehicle cost about $49,800 in November, up roughly 1% from a year earlier, according to Cox. Prices tend to rise about 3% a year, Cox said. Manufacturers have recently limited price increases, but aren’t expected to absorb the cost of tariffs much longer.

“We expect vehicle prices to at least return to their pre-tariff trend, with much of the rise in prices coming in [the next four months], as the 2026 model changeover process plays out,” Oxford said. “We expect to see a more muted rise in vehicles’ prices in the second half of 2026.”

By then, Federal Reserve rate cuts may have “substantially” lowered interest rates, and those who finance a car that was assembled in the U.S. may get a relatively large tax return, Oxford said. The new tax benefit may offer the typical consumer about $50 more a month, the group said.

The average monthly payment currently accounts for 12.8% of the median income, but that may drop to 12.3% in the final quarter of 2026, Oxford said. (Estimates are based on the average new vehicle price and assume buyers make a 15% down payment on a 66-month loan.)

While lower financing costs and other incentives could improve affordability, Cox and other experts say prices themselves may moderate their growth at best. Price inflation for 2026 model-year vehicles has been above historical standards, according to JP Morgan research, and those cars account for some 60% of current new-vehicle supply.

“Purchasing a new vehicle will remain unaffordable” for low-income households, Oxford said. “Meanwhile, new tax breaks will support sales by middle-income households, and wealth gains will underpin spending on vehicles by high-income households.”

The end of the year is seen by some market watchers as an advantageous time for used-car shoppers.