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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 That Mean for Car Buyers
Used car prices saw a massive drop in December, but buying a car now can remain prohibitive for certain buyers.
By Whitney Vandiver Writer | Car ownership, car maintenance Whitney Vandiver writes for NerdWallet about how car owners can reduce the cost of ownership and 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 help people in the LGBTQ+ community the most satisfying to write. In her spare time, she’s walking and reading with her Irish Wolfhound. She is based in Houston.

Feb 1 2023

Edited by Julie Myhre-Nunes Assistant Assigning Editor Auto loans, consumer credit Julie Myhre-Nunes is an assistant assigning editor at NerdWallet. She has been working in the area of personal finance for over 10 years. Prior to being hired by NerdWallet, Julie oversaw editorial teams at NextAdvisor, Red Ventures and Quote.com. Personal finance insights from Julie have been highlighted in Forbes, The Boston Globe and CNBC over the years. Julie’s writing has been published in USA Today, Business Insider and Wired Insights, among others. Email: .

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After more than a year of soaring prices, the used-car market cooled by a few degree in the month of December.
The new trend offers some relief to those who buy cars. However, inventories have not yet be at levels that are comparable to pre-pandemic, and consumers haven’t yet regained the purchasing power they had in 2019.
While experts say the used car market for this year is expected to continue to grow the consumers must 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 which is a personal app for buying a used car, used car prices decreased during December, for the 6th consecutive month, falling 8.8 percent since January 2022. To put it in perspective this was the largest annual drop the used car market has experienced since the final month during the Great Recession in June 2009.
However, they’ve got a way to go before buyers are within the same territory as they are today The average used car price was 30.1% higher than a normal market price.
It’s a market that’s experiencing “more of a gradual returning to normal than is typically declining,” says Joseph Yoon an analyst for consumer insights at Edmunds an online car guide. “The rates are still extremely, very, very much overvalued.”
The current interest rates are a barrier to used car accessibility
One of the factors that affect used car prices is the Federal Reserve’s abrasive rate of interest hikes in response to rising inflation.
According to Edmunds the average interest rate for a used-car loan grew from 8.76% in July to 10.25% in December. As loan rates increase people who finance vehicle purchases will pay more for the car, even with lower prices on 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 however they will need to navigate an overcrowded car market. Potential car buyers should anticipate certain trends when they shop for a used vehicle this year.
Prices are lower compared to 2022.
As demand for used cars decreases, prices will remain in decline. Based on J.P. Morgan Research, prices for used cars could fall as much as 10% to 20% in 2023. If you believe that the Fed continues to increase rates of interest, the cost of vehicles will likely continue to fall in a downward trend.
But not all car models will be priced at the same time. Smaller cars and pick-ups have seen the smallest change in cost since January 2022, in the opinion of Cox Automotive, an auto data company — while high-end cars and SUVs have experienced the largest price drops.
Continuation of higher-than-normal ownership cost
As used-car prices drop making it more attractive to potential buyers the surge in interest rates means that consumers who have to finance their purchases will continue to feel the pressure of the inflated market.
Car buyers who take advantage of falling prices and finance purchases amid increased interest rates could pay more for their car for the duration of the loan. In addition to a higher monthly cost, they could have negative equity at the end of the tunnel, finding themselves .
Values for trade-ins fluctuate
Based on J.D. Power which is a research and data firm, trade-in vehicles in December received an average of $786 less trade-in value than those which were sold in June. Because dealerships anticipate earning less on used-car sales the value of trade-ins will continue to fall in comparison to the prior year.
People who plan to sell their current cars should be prepared for lower values than what was last year.
“It’s expected to represent a significant drop of what you’ll receive from the trade-in price compared to when you were in search of an automobile in September,” states Terrance Gandy, the used-car sales manager at Route 44 Toyota in Raynham, Massachusetts.
Affluent, but relatively low inventory levels
Automakers are working towards the production levels of pre-pandemics and used vehicles are becoming more affordable, consumers’ demand is still expected to be strong following the shortage of vehicles in years past, according to J.D. Power. This could reduce the available stock of used vehicles since more buyers are likely to purchase vehicles after waiting for used car prices to drop, which peaked in September.
“Even if prices do come lower,” says Yoon, “for the next few years we’ll still be a million of vehicles short on used cars.”
This will allow certain consumers be in a stronger position in negotiations over trade-in deals.
“They have a better chance of negotiating right now since dealers need to remove these new cars off their lots,” says Gandy. “The ball is kind of at your disposal if you do have a trade-in because right now dealers are in need of your vehicle.”

About the writer: Whitney Vandiver is a writer at NerdWallet currently focusing on car ownership and maintenance. She has previously written about payments for small businesses and payment.

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