Will Classic Car Prices EVER Go Down?

Important disclaimer: This article (nor any content on this website) is not intended as financial advice. Investing in any asset class, including classic cars, carries considerable risk. Garage Dreams accepts no responsibility for any financial loss incurred as a result of investing (or choosing not to invest) in classic cars. 

With that boring legalese out of the way, it’s time to have an important discussion.

That discussion is whether classic car prices will ever come down?

Unless you’ve been living under a rock of late, you won’t have missed the painful fact that classic car prices have gone to the stratosphere.

On this website we focus primarily on “modern classics”, particularly Japanese/JDM cars, and that is as good a place as any to start.

Just the other day, I was browsing TradeMe (New Zealand’s top platform for buying and selling cars) and came across a mint condition, low mileage Toyota Celica GT-Four.

This took me back about 15 years, when I was at high school, and I had the opportunity to purchase a genuine GT-Four WRC limited edition model. If I recall, the seller was asking about $8000 for the car at the time. I didn’t buy it because insurance was too high, and also it had something slightly iffy with the suspension and back in those days you could easily just wait for another to come along.

That same car would now sell for the best part of 10x the money.

Even prices of mundane, everyday cars from the 80s/90s/early 2000s have gone crazy in recent years.

I mean have you seen what people are paying on Bring A Trailer for cars that weren’t even considered to be good in their heyday? Boring old econoboxes going for thousands and thousands of dollars as we all get caught up in classic car mania.

Ultimately, just like beauty, value is in the eye of the beholder. Many have been conditioned to believe that prices will continue to go only in one direction.

But will classic car prices ever go down?

In this article, I explain why I believe there is distinct potential for classic car values to decline in the future.

Excluding The 1%er Cars

Some classic cars (particularly vintage vehicles, ultra-rare collector’s cars for the genuine 1%ers etc) will probably hold or even continue to rise in value.

For example, I don’t see there being much risk of me being able to afford a Ferrari 250 GTO anytime soon.

There are some cars that are so desirable, so special, so rare and so coveted (by people who have limitless wealth, in good and bad economic times) that this category needs to be set aside and considered separately.

I think it’s important to make this distinction versus more ‘attainable’ classics/modern classics, which is the focus of Garage Dreams and this particular discussion.

Speculative Mania Is Driving Classic Car Prices

In my opinion (and remember, this is just my opinion) there is clear potential for classic car values and prices to go down in the short-to-mid term.

The reason for this is simple.

Classic cars – e.g. the JDM ‘hero’ cars that are the primary focus of this site, such as the Honda Integra Type R or Toyota Celica GT-Four – have become a vehicle for speculation (pun intended).

Prices have arguably risen well beyond the underlying value and utility of the cars in question, and they’ve done so because many buyers have become – intentionally or unintentionally – speculators who are operating on the belief that overpaying doesn’t matter, because there will always be someone willing to come along and pay more.

Speculative manias, as a rule, always result in both market participants and outside observers believing that the ride will never end, and that prices will always continue to increase … so it doesn’t matter if you overpay because somebody else will always overpay more.

However, given sufficient time, every bubble must burst. This isn’t some great piece of economic insight, it’s just a time-tested reality.

The Tulip Mania, the 1920s stock market, the Dot Com Bubble, cryptocurrency and even the housing market – history is full of speculative economic bubbles that looked like they would never pop, until they did.

For what it’s worth, I believe that classic cars have been in a speculative bubble/mania of sorts in recent years.

Although there are undoubtedly some “legitimate” factors resulting in rising prices (namely age/milage reducing the supply of available cars – economics 101 -, supply chain impacts from Covid, as well as a genuine increase in enthusiast interest, to name a few) a primary driving force behind inflated classic car prices is the speculative effect … asset prices rising beyond their intrinsic values because of a belief that there will always be market participants willing to pay more and ‘keep the gravy train going’.

I can think of many classic card ads I’ve read of late, where the entire “value proposition” for the car is that you should buy it at an inflated price because it will only keep going up in price.

That is bubble economics 101. “Buy my stuff, not because it’s really providing that much value but because someone else will totally buy it off you for more money”.

This is not a new thought. People vastly more intelligent than myself have been analysing bubbles and manias for years. Back in the early 1800s, Charles Mackay wrote Extraordinary Popular Delusions and the Madness of Crowds, and focused much of his writing on financial manias and bubbles.

The thing with all speculative bubbles is that every last one of them pops at some point or another. It’s never a matter of if, but when.

When the bubble bursts (and it feels like there might already be some bursting taking place) then prices will decrease. Unless classic cars have somehow managed to escape the laws of economics, this day will have to come at some point or another.

The End Of Easy Money Will Have An Effect On Prices

There is a second factor to consider, and it relates closely to the bubble discussion above.

We have been living through a period of unprecedentedly low interest rates, particularly following Covid.

Central banks and governments across the world all slashed interest rates and pumped huge amounts of liquidity into economies.

This “easy money” has led to a surge in asset values, as investors chase returns from various assets (because interest on money at the bank – e.g. term deposits – has been so low, and actually negative when you factor in inflation)

Mortgage rates have been low (so if you wanted that classic car you could just borrow a bit more against the house) and buyers with decent credit have been able to borrow on cheap rates to purchase cars via dealer/bank finance … basically money has never been cheaper.

On the Wikipedia page about bubbles in economics, excessive liquidity is actually listed as one of the causes of bubbles and financial manias (and it becomes a bit of a self-fulfilling prophecy; easy money/low interest rates lead to investment in speculative assets, which in turn drives up prices and therefore attracts more investment to chase further returns).

However, because inflation is causing so much pain in economies across the world, we are now seeing interest rates rapidly rise.

Here in New Zealand, for example, mortgage rates have gone in the space of ~12 months from ~3% to ~6%. This is already causing a decline in house prices, and wallet-tightening as people suddenly have to trim their spending to be able to afford to pay higher mortgage rates.

Higher rates pose downside risk to classic car values for two key reasons.

Firstly, if your mortgage/loan payments start taking more of your take-home pay, you won’t have as much money to save up and pay for and maintain a classic car (this is probably why I am starting to see a number of private sale classics in the local market listed as ‘circumstances dictate a sale’ – i.e. “I can’t afford to keep a roof over my head and keep the classic car on the road”)

Secondly, if borrowing is more expensive, there will be fewer financed purchases of classic cars. This means less money entering the market and lower demand, which means classic car prices should decline.

Intrinsic Value Cannot Be Overlooked

Consider a desirable, now–expensive modern classic like the Honda Integra Type R.

A mint condition example will now sell for similar money to a brand new front-wheel drive performance car, something like a Hyundai i30N (our American readers will know the Veloster N … basically the same car in a different body).

While the Integra Type R is a superb vehicle, in almost every conceivable objective measure, the i30N is better. It is faster, safer, better-equipped, easier to drive, cheaper to run, and so on.

Now there is no doubt that a mint DC2 Integra Type R is a more special and unique car, but that is more of a subjective measurement. You might have always wanted an Integra Type R, and now you’re finally in the position to afford one and paying above the odds for the subjective aim of fulfilling a dream could be worth every penny to you.

However, I do believe that classic car values have got very much out of sync with the underlying intrinsic values of the cars themselves.

If you apply a logical lens and let the objective outweigh the subjective, new cars are now better buying than most classics/modern classics in almost every category.

I believe that as economic conditions deteriorate, buyers will come to realise that it’s better to take the objectively better road as opposed to the subjective one, and buy a newer car that does everything better (and I say this as a genuine classic car enthusiast).

In defence of cars as an investment versus other asset classes, at least a car offers genuine utility. You can’t drive to work in a Bitcoin, but you can drive to work in your Honda S2000 … and have a lot of fun doing so.

The inherent utility of any car, including classics, means there will always be some kind of price floor, as opposed to some of the more famous mania/bubble examples in the past such as the Dutch Tulip mania.

Conclusion – Will Classic Car Prices Ever Come Down To More Reasonable Levels?

I’d like to state one more time for the record that this article is my opinion only, and in one way is meant to constitute investment advice. Please don’t come and beat down my door if you miss out because of my opinions!

With that being said, I do believe there is a distinct possibility that classic car prices will come down in the short-to-mid term, for three reasons:

1. Classic cars – like many other investment assets – have been in a bubble in recent years (particularly over the last 2-3 years). People have been buying cars not because they represent good value at the prices being paid, but because they believe that someone else will always come along and be willing to pay more money … this is classic bubble economics/speculative mania – paying beyond the intrinsic value of an asset because you have a belief that the price can’t go down and there will always be a ‘greater fool’.
2. Easy money (low interest rates and plumped-in liquidity) appears to be coming to an end as global economies battle raging inflation. Higher interest rates means more expensive borrowing costs. Homeowners/debt holders will have to spend more money on interest payments, meaning less available to spend on other assets (like classic cars). Less money – that is also more expensive to access – swishing around in the system should result in lower demand for nice-to-haves. Furthermore, some owners may even be pressured to sell owing to climbing mortgage costs.
3. In many instances, classic car values have completely exceeded the intrinsic values of the cars themselves. We have reached a point where you can buy new cars that are just as good (if not better) for the same or less money. Of course this doesn’t just apply to classic/investment-grade cars … the wider used car market has become very distorted of late. When I purchased my Suzuki Swift Sport, for example, it was only about 10% more to buy a brand new car from the main dealer than it was to buy a couple of year old example private sale.

For what it’s worth, I don’t believe we will ever return to the days of ‘dirt cheap’ modern classics; barring some kind of true financial Armageddon, in which case getting your hands on a cheap Mitsubishi Evo or R34 GT-R is going to be the last of your problems.

At the end of the day, there will always be some demand and willingness/capability to purchase, and the supply of any given classic will always dwindle over time due to age and mileage taking their toll on available stock. I’d liken this to cryptocurrency – Bitcoin, for example, reached incredible new highs and has fallen back drastically since, but we are unlikely to ever see the days of $100 Bitcoin ever again as there is always going to be some level of demand.

However, for the reasons outlined in this article, I do believe that there is strong potential for classic car prices to first stabilise and then decline, in lock step with other asset classes such as property and equities.

I’d love to hear your take on the future direction of the classic car market. Feel free to leave a comment below, it would be great to hear from you.