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11/03/2023 at 05:07 #45559lonnyx113543Participant
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Used Car Prices are dropping What Does This Mean for Car Buyers
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Used Car Prices are Dropping What Does This Mean for Car Buyers
The prices of used cars saw a huge drop in December, but buying a car today could still be prohibitive for some buyers.
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 has previously written for the oil and gas industry where she was recognized in national newspapers and international magazines. Whitney became a writer out of a sense of fun and finds stories that highlight or assist the LGBTQ+ community the most rewarding to craft. In her spare time, she enjoys walking, reading, and walking her Irish Wolfhound. Her home is in Houston.
January 1, 2023
Written by Julie Myhre-Nunes, Assistant Assigning Editor Auto loans Consumer credit, auto loans Julie Myhre-Nunes is an assistant editor assigned to NerdWallet. She has worked in the personal finance space for over ten years. Before becoming a part of NerdWallet, Julie oversaw editorial teams at NextAdvisor, Red Ventures and Quote.com. Personal finance insights from Julie have been highlighted by Forbes, The Boston Globe and CNBC over the years. Julie’s writing has been published by USA Today, Business Insider and Wired Insights, among others. Email: .
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Following more than one decade of soaring prices The used-car market began to cool by a few temperatures in December.
The trend brings some relief for car buyers. But inventories have yet to get to levels pre-pandemic and consumers haven’t yet regained the buying power they had in the year 2019.
Although experts predict that this year’s used-car market is expected to continue to grow, consumers need to have realistic expectations about the way that car purchases will play like in 2023.
December saw a record decline in used car prices
According to a January 2023 report by CoPilot, a personalized app for buying a used car, used car prices fell in December for the sixth time in a row month, dropping 8.8% since January 2022. To give some perspective this drop was the biggest annual drop that the used car segment has seen since the last month during the Great Recession in June 2009.
But they’ve have a ways to go before they’re in familiar territory — the median used-car price still rang in at 30.1% higher than the market average.
Markets are witnessing “more of a slow returning to normal than what you would call traditionally a decline,” says Joseph Yoon, consumer insights analyst at Edmunds the online car guide. “The prices are still very highly, extremely higher.”
However, interest rates continue to limit used-car affordability
One of the factors that affect used car prices is the Federal Reserve’s aggressive rate of interest hikes in response to rising inflation.
According to Edmunds the average rate of interest for a used car loan was up from 8.76% in July to 10.25% in December. As loan rates rise those who finance car purchases will be paying more for the vehicle, despite lower prices on the sticker.
What does this mean for car buyers
Consumers who plan to purchase a second-hand car in the coming year might be relieved to find lower prices on windshields however they will need to navigate an overcrowded car market. Prospective buyers need to anticipate various trends when looking for a used car this year.
Lower prices than 2022
If the demand for used cars wanes, prices should remain in decline. Based on J.P. Morgan Research, prices for used cars could drop as high as 10 percent to 20% by 2023. In the event that the Fed continues to raise interest rates, vehicle prices will likely keep their downward trend.
However, not all cars will drop in price at the same time. Compact cars and pickups have had the smallest changes in prices from January 2022 according to Cox Automotive, an auto data company — while luxury cars and SUVs have experienced the largest price drops.
In the event of a continuation of an ownership cost higher than normal
With the price of used cars dropping and attract potential buyers, the surge in interest rates will mean that those who require financing for their purchases will continue to feel the strain of the inflated market.
Car buyers who profit of lower prices and financing purchases despite rising interest rates may end up paying more for a car during the term of a loan. In addition to a higher monthly payment, they could be faced with negative equity in the future when they find themselves .
Fluctuating trade-in values
Based on J.D. Power which is a firm that conducts research and data the trade-in of vehicles in December received the equivalent of $786 more value for trade-ins than the vehicles traded last June. Since dealerships are expected to earn less from sales of used cars and trade-in value will continue to fall compared to the previous year.
People who plan to trade in their current models should anticipate lower prices than the ones last year.
“It’s likely to result in a substantial drop of what you’ll get from the trade-in value versus the price if you were searching for an automobile during September.” says Terrance Gandy, the used-car sales manager for Route 44 Toyota in Raynham, Massachusetts.
Inventory levels have increased, but remain relatively low. levels
Automakers are working towards production levels that are pre-pandemic and used vehicles are becoming more affordable, consumer demand is still expected to be high following the vehicle shortage of years past, according to J.D. Power. This will reduce the stock of used vehicles since more buyers are likely to purchase vehicles after waiting for used car prices to drop that reached their peak in September.
“Even if prices do come down,” says Yoon, “for the next few years we’ll be a million of cars short of used cars.”
But that will help certain consumers have a better chance in negotiations over trade-in deals.
“They have a better likelihood of negotiating now because dealers have to get these [new] automobiles off their showrooms,” says Gandy. “The ball is in your hands if do decide to trade-in your vehicle because right now these dealers need your vehicle.”
About the author: Whitney Vandiver is a writer at NerdWallet which is currently focused on maintenance and ownership of cars. She has previously written about payments for small businesses and payment.
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