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11/03/2023 at 14:41 #45671milomccue65463Participant
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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
Used car prices saw a massive decline in December, but buying a car now can remain prohibitive for certain buyers.
Written by Whitney Vandiver Writer | Car ownership, car maintenance Whitney Vandiver writes for NerdWallet on ways that car owners can reduce the cost of ownership and maintenance. She has previously written for 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 highlight or aid the LGBTQ+ community the most rewarding to craft. In her spare time, she loves walking, reading, and walking her Irish wolfhound. She is based in Houston.
January 1 Feb 2023
Written by Julie Myhre-Nunes, Assistant Assigning editor Auto loans and consumer credit Julie Myhre-Nunes works as an assistant assigning editor at NerdWallet. She has been working in the personal finance space for over ten years. Prior to joining NerdWallet, Julie oversaw editorial teams at NextAdvisor, Red Ventures and Quote.com. Julie’s personal financial insights have been featured in Forbes, The Boston Globe and CNBC throughout the years. Julie’s articles have been published by USA Today, Business Insider and Wired Insights, among others. Email: .
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In the aftermath of more than a year of overheated prices, the used-car market cooled by a few degrees in December.
The trend brings some relief for car buyers. However, inventories have not yet get to levels pre-pandemic and consumers still miss the purchasing power they enjoyed in 2019.
While experts say the used car market for this year is expected to continue to grow Consumers must have realistic expectations of what buying a car will look like in 2023.
December saw a record-breaking decline in used car prices
According to a report published in January 2023 by CoPilot which is a personal app for car buying, used-car prices decreased during December, for the 6th time in a row month, falling 8.8 percent from January 2022. For a better understanding this drop 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 still have a ways to go before buyers are within the same territory as they are today The average used car cost was 30.1 percent more than the market average.
Markets are witnessing “more of a slow returning to normal than what you would call traditionally an economic decline,” says Joseph Yoon the consumer insights analyst at Edmunds an online car guide. “The rates are still extremely, very, very much higher.”
However, interest rates continue to limit used-car affordability
One influence on used-car prices is the Federal Reserve’s aggressive interest rate hikes in response to the rising rate of inflation.
According to Edmunds the average rate of interest for a used car loan grew from 8.76 percent in July to 10.25 percent in December. As loan rates increase, consumers who finance vehicle purchases will pay higher fees vehicle, despite lower price of the sticker.
What this means for car buyers
Consumers who plan to purchase a second-hand car in the coming year may be pleased to see lower costs for windshields but they’ll still have to navigate a distended car market. Potential car buyers should anticipate certain trends when they shop for a used car this year.
Cheaper prices compared to 2022
If the demand for used cars is decreasing, prices are expected to be expected to continue to fall. According to J.P. Morgan Research, prices for used vehicles could drop as high as 10% to 20% in 2023. Should the Fed continues to raise interest rates, vehicle prices are likely to continue their downward trend.
But not all car models will be priced at the same rate. Compact cars and pickups have seen the least changes in price in the last year, in the opinion of Cox Automotive, an auto data company — while luxury vehicles and SUVs have had the biggest price decreases.
In the event of a continuation of an ownership cost higher than normal
When used car prices fall making it more attractive to potential buyers the rise in interest rates will mean consumers who have to finance their purchases are likely to feel the strain of an overpriced market.
Buyers of cars who take advantage of the falling prices and financing purchases despite higher interest rates might pay more for cars for the duration of the loan. In addition to a higher monthly installment, they may be faced with negative equity in the future and end up .
Values for trade-ins fluctuate
As per J.D. Power which is a research and data firm, trade-in vehicles in December received an average value of just $786 in value when they were traded last June. Since dealerships are expected to earn less from sales of used cars, trade-in values will continue to decrease when compared to last year’s.
Car owners who are looking to sell their current models should anticipate lower values than what was available in the previous year.
“It’s likely to result in a significant reduction of what you’ll receive from the value of your trade-in when you were in search of a car during September.” claims Terrance Gandy who is the sales manager for used cars for Route 44 Toyota in Raynham, Massachusetts.
Increased but relatively low inventory levels
While automakers are working toward production levels that are pre-pandemic and used cars are becoming more affordable, consumers’ demand will continue to be strong following the vehicle shortage of times past, as per J.D. Power. This could reduce the available stock of used vehicles as more car buyers decide to purchase vehicles after waiting to see the prices of used cars which reached their highest in September.
“Even if prices do come lower,” says Yoon, “for the foreseeable future we’ll be millions of cars short of used cars.”
This will allow some consumers be in a stronger position when bargaining trade-in offers.
“They have a better chance of getting a deal right now, because dealers must remove these new vehicles off their lot,” says Gandy. “The ball is in your court if you do decide to trade-in your vehicle because right now dealers want your vehicle.”
About the author: Whitney Vandiver is a writer for NerdWallet which is currently focusing on maintenance and ownership of cars. She’s previously written about small-scale businesses and payments.
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