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Used Car Prices Are Dropping What Does That 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 now can remain prohibitive for certain buyers.
by Whitney Vandiver Writer | Car ownership, maintenance of cars Whitney Vandiver writes for NerdWallet on ways that car owners can reduce the cost of ownership and maintenance. She previously wrote in the oil and gas industry which led to her being published in national journals and international magazines. Whitney started writing because of enjoyment and finds stories that showcase or aid the LGBTQ+ community the most satisfying to write. If she’s not working, she loves reading and walking with her Irish Wolfhound. She is based in Houston.
February 1st, 2023
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Following more than one decade of soaring prices the used car market was cooled by several degree in the month of December.
The trend brings some relief to those who buy cars. But inventories have yet to reach pre-pandemic levels, and consumers are still unable to enjoy the buying power they had in 2019.
While experts say this year’s used-car market will continue to improve, consumers need to be realistic about what car buying will look like in 2023.
December saw a record decrease in the cost of used cars
According to a report from January 2023 by CoPilot which is a personal app for buying a used car, used car prices decreased during December, for the 6th straight month, dropping 8.8 percent from January 2022. To give some perspective, this plunge was the biggest annual drop the used-car segment has seen since the end in the Great Recession in June 2009.
But they’ve have a ways to go before buyers are within the same territory as they are today — the average used-car price was 30.1% higher than the market average.
The market is seeing “more of a slow returning to normal than what you would call traditionally declining,” says Joseph Yoon an analyst for consumer insights at Edmunds the online car guide. “The prices are very highly, extremely elevated.”
However, interest rates continue to limit used-car affordability
One of the factors that affect used car prices has been the Federal Reserve’s aggressive rate of interest hikes in response to rising inflation.
According to Edmunds, the average cost of a used-car loan was up from 8.76 percent in July, to 10.25% in December. As loan rates rise people who finance vehicle purchases will be paying more vehicle, despite lower prices on the sticker.
What this means for car buyers
People who are planning to purchase an used vehicle this year may be pleased to see lower windshield prices but will still find they must navigate a crowded car market. Buyers of used cars should be aware of several trends when shopping for a second-hand vehicle this year.
Lower prices than 2022
As the demand for cars used wanes, prices should continue to drop. Based on J.P. Morgan Research, prices for used vehicles could decrease by 10% to 20% in 2023. If you believe that the Fed continues to increase interest rates, vehicle prices will likely continue to fall in a downward trend.
However, not all models will drop in price at the same time. Smaller cars and pick-ups have seen the least changes in prices since January 2022, in the opinion of Cox Automotive, an auto company that collects data — while luxury cars and SUVs have seen the biggest price decreases.
Continuation of higher-than-normal ownership cost
When used car prices fall, tempting potential buyers, the increase in interest rates will mean that those who need to finance their purchases will continue to feel the pressure from the market that is soaring.
Buyers of cars who take advantage of falling prices and finance purchases amid increased interest rates could pay more for a car for the duration of the loan. In addition to a greater monthly cost, they could be faced with negative equity in the future when they find themselves .
Fluctuating trade-in values
Based on J.D. Power the data and research firm that tracked trade-ins in December, vehicles received an average of $786 less value for trade-ins than the vehicles that were traded in June. Since dealerships are expected to earn less from sales of used cars, trade-in values are expected to continue to decline compared to the previous year.
People who plan to sell their current vehicles should expect lower prices than those last year.
“It’s likely to result in a substantial drop of what you’ll receive from the trade-in price compared to if you were looking for a car at the end of September” claims Terrance Gandy, the used-car sales manager in Route 44 Toyota in Raynham, Massachusetts.
Increased but relatively low inventory levels
As automakers work towards the production levels of pre-pandemics and used vehicles are becoming more affordable, consumer demand will continue to be strong following the car shortage in the 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 to see the prices of used cars, which peaked in September.
“Even even if prices come down,” says Yoon, “for the next few years, we’re going to be millions of units short on used car inventory.”
This will allow certain consumers have a better chance when it comes to bargaining offers for trade-ins.
“They have a better likelihood of negotiating now, because dealers must get these [new] automobiles off their showrooms,” says Gandy. “The ball is kind of in your hands if are able to trade in your car because dealers want your vehicle.”
About the writer: Whitney Vandiver is a writer for NerdWallet which is currently focusing on the maintenance of vehicles and car ownership. She’s written previously about small-scale businesses and payments.
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