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11/03/2023 at 03:19 #45539amy50p33494Participant
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Used Car Prices are dropping What Does That Mean for Car Buyers
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Used Car Prices are dropping What Does That Mean for Car Buyers
The prices of used cars saw a huge decline in December, but purchasing a vehicle now could still be expensive for certain buyers.
Written by Whitney Vandiver Writer | Car ownership, car maintenance Whitney Vandiver writes for NerdWallet about how car owners can save money on ownership as well as maintenance. She was previously a writer in the petroleum and gas industries, where she was published in national journals and international magazines. Whitney started writing because of a sense of fun and finds stories that highlight or aid people in the LGBTQ+ community the most satisfying to create. If she’s not working, she enjoys walking and reading with her Irish wolfhound. Her home is in Houston.
February 1 Feb 2023
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In the aftermath of more than a decade of prices that were too high the used car market was cooled by a few degree in the month of December.
The trend brings some relief to those who buy cars. But inventories have yet to be at levels that are comparable to pre-pandemic, and consumers haven’t yet regained the purchasing power they had in the year 2019.
While experts say the used car market in this year’s forecast will improve the consumers must be realistic about what car buying will look like in 2023.
December saw a record-breaking decrease in the cost of used cars
According to a January 2023 report from CoPilot, a personalized app for car buying, used-car prices fell during December, for the 6th consecutive month, dropping 8.8 percent from January 2022. For a better understanding this was the largest annual drop the used car market has experienced since the final month in the Great Recession in June 2009.
But they’ve left a long way to go before they’re in a familiar space — the average used-car price still rang in at 30.1 percent higher than a normal market price.
It’s a market that’s experiencing “more of a gradual return to normalcy than what one would normally consider an economic decline,” says Joseph Yoon an analyst for consumer insights at Edmunds the online guide to cars. “The prices are very highly, extremely overvalued.”
Interest rates still hamper used-car affordability
One factor that has influenced the prices of used cars has been the Federal Reserve’s abrasive increase in interest rates due to the rising rate of inflation.
According to Edmunds the typical cost of a used-car loan was up from 8.76% in July to 10.25 percent in December. As loan rates become more expensive people who finance vehicle purchases will find they’re paying more for the vehicle, despite lower price of the sticker.
What this means for car buyers
Consumers planning to buy an used vehicle this year might be relieved to see lower costs for windshields but they’ll still have to navigate a distended car market. Potential car buyers should anticipate several trends when shopping for a second-hand car this year.
Cheaper prices compared to 2022
If the demand for used cars is decreasing, prices are expected to remain in decline. According to J.P. Morgan Research, prices for used cars could decrease by 10% to 20% in 2023. In the event that you believe that the Fed continues to increase rates of interest, prices for vehicles are likely to continue their downward trend.
However, not all models are expected to drop in price at the same rate. Smaller cars and pick-ups have seen the smallest change in cost since January 2022, as per Cox Automotive, an auto data firm — while the luxury vehicles and SUVs have had the biggest price decreases.
In the event of a continuation of an ownership cost higher than normal
As used-car prices drop, tempting potential buyers, the rise in interest rates will mean that those who have to finance their purchases will continue to feel the pressures of the inflated market.
Car buyers who profit of lower prices and financing purchases despite higher interest rates might pay more for cars over the life of a loan. In addition to a higher monthly installment, they may be faced with negative equity in the future when they find themselves .
Variable trade-in value fluctuations
According to J.D. Power the data and research firm that tracked trade-ins in December, vehicles received an average value of just $786 value when they were traded last June. Since dealerships are expected to earn less from sales of used cars the value of trade-ins will continue to fall in comparison to the prior year.
Car owners looking to trade in their current vehicles should expect lower prices than the ones offered in the past year.
“It’s going to be a significant reduction of what you’re gonna get from the value of your trade-in if you were looking for a car at the end of September” states Terrance Gandy, the used-car sales manager for Route 44 Toyota in Raynham, Massachusetts.
Inventory levels have increased, but remain relatively low. levels
While automakers are working toward production levels that are pre-pandemic and used cars are becoming more affordable, consumers’ need for cars is expected to be high following the vehicle shortage of previous years, according to J.D. Power. This will reduce the vehicles for sale because more people are choosing to purchase cars after waiting to see the prices of used cars, which peaked in September.
“Even the prices do go downwards,” says Yoon, “for the next few years, we’re going to be a million of units short on used cars.”
However, it will let certain consumers be in a stronger position when bargaining trade-in offers.
“They have a greater likelihood of negotiating now because dealers have to take these cars off their lots,” says Gandy. “The ball is at your disposal if you do have a trade-in because right now dealers want your vehicle.”
About the author: Whitney Vandiver is a writer for NerdWallet which is currently focusing on the maintenance of vehicles and car ownership. She’s previously written about payments for small businesses and payment.
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