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11/03/2023 at 21:40 #45753madonnacastiglioParticipant
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Used Car Prices Are Dropping: What That Means for Car Buyers
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Used Car Prices Are Dropping What Does This Mean for Car Buyers
Used car prices saw a massive drop in December, but buying a car today could remain prohibitive for some buyers.
Written by Whitney Vandiver Writer | Car ownership, maintenance of cars Whitney Vandiver writes for NerdWallet on ways that car owners can save money on ownership as well as maintenance. She previously wrote in the oil and gas industry which led to her being featured in national publications as well as international magazines. Whitney began writing out of a sense of fun and finds stories that showcase or aid the LGBTQ+ community the most satisfying to write. If she’s not working, she enjoys reading and walking with her Irish wolfhound. She is based in Houston.
Feb 1 Feb 2023
The article is edited by Julie Myhre-Nunes. Assistant Assigning Editor Auto loans and consumer credit Julie Myhre-Nunes is an assistant assigning editor at NerdWallet. She has been working in the personal finance space for over ten years. Prior to becoming a part of NerdWallet, Julie oversaw editorial teams at NextAdvisor, Red Ventures and Quote.com. Her personal finance insight has been highlighted by Forbes, The Boston Globe and CNBC over the years. Julie’s writing has been published through USA Today, Business Insider and Wired Insights, among others. Email: .
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Following more than one year of prices that were too high the used car market was cooled by a few degrees in December.
The current trend is bringing some relief for car buyers. However, inventories have not yet reach pre-pandemic levels, and consumers are still unable to enjoy the purchasing power they had in 2019.
Experts say that the used car market for this year will improve Consumers must be realistic about what car buying will look like in 2023.
December saw the biggest decrease in the cost of used cars
According to a report published in January 2023 by CoPilot which is a personal app for car buying, used-car prices fell to a record low in the month of December. It was the sixth straight month, with a drop of 8.8 percent from January 2022. To put it in perspective this was the largest annual drop the used-car segment has seen since the end of the Great Recession in June 2009.
But they’ve got a way to go before they’re in familiar territory The average used car price still rang in at 30.1 percent more than a market-rate average.
It’s a market that’s experiencing “more of a slow return to normalcy than 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, very, very much elevated.”
The current interest rates are a barrier to used car affordability
One influence on used-car prices is the Federal Reserve’s abrasive increase in interest rates due to inflation rising.
According to Edmunds, the average rate of interest for a used car loan increased from 8.76% in July to 10.25% in December. As loan rates become more expensive those who finance car purchases will be paying more for the , despite the lower price of the sticker.
What this means for car buyers
Consumers planning to buy a second-hand car in the coming year could be happy to find lower prices on windshields but they’ll still must navigate a crowded car market. Prospective buyers need to anticipate various trends when looking for a second-hand car this year.
Prices are lower compared to 2022.
As the demand for cars used decreases, prices will continue to drop. According to J.P. Morgan Research, prices for used vehicles could drop as high as 10 20 to 20% by 2023. Should it is the case that the Fed continues to increase rates of interest, prices for vehicles will likely continue to fall in a downward trend.
However, not all cars will be priced at the same pace. Smaller cars and pick-ups have seen the smallest change in prices in the last year, according to Cox Automotive, an auto company that collects data — while luxury vehicles and SUVs have experienced the biggest price decreases.
In the event of a continuation of an ownership cost higher than normal
With the price of used cars dropping, tempting potential buyers, the surge in interest rates will mean consumers who require financing for their purchases will likely continue to feel the strain of an overpriced market.
Car buyers who take advantage of falling prices and financing purchases despite higher interest rates might pay more for a car for the duration of the loan. In addition to a greater monthly installment, they may face negative equity later, finding themselves .
Fluctuating trade-in values
According to J.D. Power, a data and research firm the trade-in of vehicles in December received the equivalent of $786 more value for trade-ins than the vehicles which were sold in June. Since dealerships are expected to earn less on used-car sales and trade-in value will continue to fall when compared to last year’s.
People who plan to sell their current vehicles should expect lower prices than those available in the previous year.
“It’s likely to result in a substantial drop of what you’ll get from the trade-in value versus if you were looking for a car during September.” says Terrance Gandy, the used-car sales manager in Route 44 Toyota in Raynham, Massachusetts.
Increased but relatively low inventory levels
Automakers are working towards pre-pandemic production levels and used vehicles are getting more affordable, the consumer demand is still expected to be high due to the vehicle shortage of times past, as per J.D. Power. This may reduce the stock of used vehicles because more people are choosing to buy cars after waiting to see the prices of used cars that reached their peak in September.
“Even even if prices come downwards,” says Yoon, “for the foreseeable future we’ll be a million of units short on used car inventory.”
However, it will let some consumers be in a stronger position when bargaining trade-in offers.
“They have a better chance of getting a deal right now since dealers need to get these [new] cars off their lots,” says Gandy. “The ball is kind of in your hands if do decide to trade-in your vehicle since dealers are in need of your vehicle.”
About the writer: Whitney Vandiver is a writer at NerdWallet which is currently focusing on car ownership and maintenance. She’s previously written about payments for small businesses and payment.
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