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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
The prices of used cars saw a huge drop in December, but buying a car today could still be prohibitive for certain buyers.
Written by Whitney Vandiver Writer | Car ownership, maintenance of cars Whitney Vandiver writes for NerdWallet about how car owners can save money on ownership as well as maintenance. She was previously a writer in the oil and gas industry, where she was published in national journals and international magazines. Whitney started writing because of a sense of fun and finds stories that highlight or assist those in the LGBTQ+ community the most satisfying to create. If she’s not working, she loves walking and reading with her Irish Wolfhound. She is based in Houston.

January 1, 2023

The article is edited by Julie Myhre-Nunes. Assistant Assigning Editor Auto loans Consumer credit, auto loans Julie Myhre-Nunes is an assistant assigning editor at NerdWallet. She has been working in the area of personal finance 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 featured in Forbes, The Boston Globe and CNBC throughout the years. Julie’s articles have been published in USA Today, Business Insider and Wired Insights, among others. Email: .

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Following more than one year of overheated prices, the used-car market cooled by several degree in the month of December.
The current trend is bringing some relief for car buyers. However, inventories aren’t yet reach pre-pandemic levels, and consumers haven’t yet regained the purchasing power they had in 2019.
Although experts predict that the used car market in this year’s forecast 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 from CoPilot which is a personal app for buying a used car, used car prices dropped in December for the sixth time in a row month, with a drop of 8.8 percent since January 2022. For a better understanding this was the largest annual drop the used car market has experienced since the final month of the Great Recession in June 2009.
But they’ve still left a long way to go before buyers are in familiar territory — the median used-car price still rang in at 30.1 percent higher than a market-rate average.
Markets are seeing “more of a slow return to normalcy than what you would call traditionally declining,” says Joseph Yoon, consumer insights analyst at Edmunds the online guide to cars. “The prices are still very high, extremely, and very elevated.”
However, interest rates continue to limit used-car affordability
One factor that has influenced the prices of used cars is the Federal Reserve’s aggressive increase in interest rates due to inflation rising.
According to Edmunds the average interest rate for a used-car loan grew from 8.76 percent in July to 10.25 percent in December. As loan rates become more expensive people who finance vehicle purchases will pay more , despite the 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 could be happy to see lower windshield prices but will still find they need to navigate an overcrowded car market. Buyers of used cars should be aware of certain trends when they shop for a second-hand car this year.
Lower prices than 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 cars could fall as much as 10% to 20% in 2023. If the Fed continues to raise rates of interest, the cost of vehicles will likely continue to fall in a downward trend.
But not all car models will drop in price at the same rate. Pickups and compact cars have had the smallest changes in prices in the last year, in the opinion of Cox Automotive, an auto company that collects data — while luxury vehicles and SUVs have had the biggest price decreases.
The continuation of a cost that is higher than normal
With the price of used cars dropping making it more attractive to potential buyers the rise in interest rates will mean that those who need to finance their purchases will continue to feel the pressure of the inflated market.
Car buyers who take advantage of lower prices and finance purchases amid higher interest rates might pay more for a car during the term of a loan. In addition to a higher monthly cost, they could have negative equity at the end of the tunnel when they find themselves .
Values for trade-ins fluctuate
As per J.D. Power, a firm that conducts research and data, trade-in vehicles in December received the equivalent of $786 more in trade-in value than those that were traded in June. Because dealerships anticipate earning less from used car sales, trade-in values will continue to fall when compared to last year’s.
Car owners looking to trade in their current vehicles should expect lower prices than those available in the previous year.
“It’s expected to represent a significant drop of what you’ll get from the value of your trade-in the price if you were searching for an auto during September.” says Terrance Gandy, the used-car sales manager in Route 44 Toyota in Raynham, Massachusetts.
Affluent, but relatively low inventory levels
Automakers are working towards production levels that are pre-pandemic and used cars are becoming more affordable, consumers’ demand is still expected to be high following the vehicle shortage of years past, according to J.D. Power. This will reduce the inventory of used cars because more people are choosing to buy cars after waiting out used-car prices which reached their highest in September.
“Even the prices do go lower,” says Yoon, “for the next few years we’ll be a million of units short on used cars.”
However, it will let certain consumers to gain a leg up when it comes to bargaining offers for trade-ins.
“They have a much better chance of getting a deal right now, because dealers must remove these new automobiles off their showrooms,” says Gandy. “The ball is at your disposal if you do decide to trade-in your vehicle because right now dealers are in need of your car.”

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

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