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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 That Means for Car Buyers
The prices of used cars saw a huge decline in December, but purchasing a vehicle now could still be prohibitive for certain buyers.
Written by Whitney Vandiver Writer | Car ownership, car maintenance Whitney Vandiver writes for NerdWallet on ways that car owners can save money on ownership and maintenance. She has previously written for the oil and gas industry, which led to her being recognized in national newspapers and international magazines. Whitney started writing because of a sense of fun and finds stories that highlight or help people in the LGBTQ+ community the most satisfying to create. In her spare time, she loves reading and walking with her Irish wolfhound. She’s based in Houston.
February 1st Feb 2023
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Following more than one decade of soaring prices, the used-car market cooled by a few degrees in December.
The new trend offers some relief for car buyers. But inventories have yet to reach pre-pandemic levels, and consumers haven’t yet regained the purchasing power they enjoyed in 2019.
While experts say the used car market for this year will improve, consumers need to have realistic expectations of the way that car purchases will play like in 2023.
December saw a record-breaking decline in used car prices
According to a January 2023 report by CoPilot an app that is personalized for car buying, used-car prices fell to a record low in the month of December. It was the sixth straight month, dropping 8.8 percent from January 2022. To put it in perspective, this plunge was the biggest annual drop that the used car segment has seen since the final month of the Great Recession in June 2009.
But they’ve got a way to go before they’re in a familiar space — the median used-car cost was 30.1% higher than a normal market price.
Markets are experiencing “more of a gradual recovery than what is typically declining,” says Joseph Yoon, consumer insights analyst at Edmunds an online guide to cars. “The rates are still extremely, very, very much elevated.”
The current interest rates are a barrier to used car accessibility
One influence on used-car prices has been the Federal Reserve’s abrasive interest rate hikes in response to the rising rate of inflation.
According to Edmunds the average cost of a used-car loan was up from 8.76 percent in July, to 10.25 percent in December. As loan rates increase, consumers who finance vehicle purchases will be paying more vehicle, despite lower sticker prices.
What does this mean for car buyers
Consumers who plan to purchase a second-hand car in the coming year could be happy to see lower windshield prices but will still find they must navigate a crowded car market. Buyers of used cars should be aware of certain trends when they shop for a second-hand vehicle this year.
Lower prices than 2022
As the demand for cars used is decreasing, prices are expected to remain in decline. Based on J.P. Morgan Research, prices for used cars could decrease by 10 20 to 20% by 2023. Should it is the case that the Fed continues to increase interest rates, vehicle prices will likely continue to fall in a downward trend.
But not all car models will drop in price at the same pace. Smaller cars and pick-ups have had the smallest changes in prices since January 2022, according to Cox Automotive, an auto data company — while the luxury cars and SUVs have experienced the largest price drops.
The continuation of a cost that is higher than normal
With the price of used cars dropping and attract potential buyers, the increase in interest rates will mean that those who require financing for their purchases will likely continue to feel the pressures from the market that is soaring.
Buyers of cars who take advantage of lower prices and finance purchases amid higher interest rates might pay more for cars for the duration of the loan. In addition to a greater monthly installment, they may be faced with negative equity in the future, finding themselves .
Values for trade-ins fluctuate
According to J.D. Power which is a research and data firm, trade-in vehicles in December were able to receive an average of $786 less in value for trade-ins than the vehicles that were traded in June. Because dealerships anticipate earning less on used-car sales, trade-in values will continue to fall when compared to last year’s.
People who plan to trade in their current cars should be prepared for lower values than what was offered in the past year.
“It’s expected to represent a significant drop of what you’ll receive from the value of your trade-in when you were in search of an automobile during September.” says Terrance Gandy who is the sales manager for used cars at Route 44 Toyota in Raynham, Massachusetts.
Inventory levels have increased, but remain relatively low. levels
While automakers are working toward pre-pandemic production levels and used cars are getting more affordable, the consumer demand is still expected to be high following the shortage of vehicles in previous years, according to J.D. Power. This will reduce the vehicles for sale because more people are choosing to purchase cars after waiting out used-car prices that reached their peak in September.
“Even if prices do come lower,” says Yoon, “for the next few years we’ll be a million of cars short of used automobile inventory.”
However, it will let certain consumers to gain a leg up when it comes to bargaining offers for trade-ins.
“They have a better likelihood of negotiating now, because dealers must get these [new] cars off their lots,” says Gandy. “The ball is in your court if you do decide to trade-in your vehicle since dealers are in need of your vehicle.”
About the author: Whitney Vandiver is a writer at NerdWallet which is currently focusing on car ownership and maintenance. She’s previously written about small business and payments.
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