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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 That Mean for Car Buyers
The prices of used cars saw a huge decline in December, but buying a car now can still be prohibitive for certain buyers.
by Whitney Vandiver Writer | Car ownership, car maintenance Whitney Vandiver writes for NerdWallet about ways car owners can save money on ownership as well as maintenance. She previously wrote in the petroleum and gas industries, where she was recognized in national newspapers as well as international magazines. Whitney started writing because of love and believes that stories that celebrate or assist the LGBTQ+ community the most satisfying to create. In her spare time, she enjoys walking, reading, and walking her Irish wolfhound. Her home is in Houston.

Feb 1 Feb 2023

Edited 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 field of personal finance for over ten years. Before being hired by 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 through 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 overheated prices The used-car market began to cool by several temperatures in December.
The new trend offers some relief to car buyers. However, inventories have not yet reach pre-pandemic levels, and consumers still miss the purchasing power they enjoyed in the year 2019.
While experts say the used car market for this year is expected to continue to grow the consumers must have realistic expectations about what car buying will look like in 2023.
December saw a record decline in used car prices
According to a report published in January 2023 from CoPilot which is a personal app to help you buy a car, used-car prices decreased in December for the sixth consecutive month, dropping 8.8 percent from January 2022. For a better understanding this was the biggest annual drop the used car market has experienced since the last month of the Great Recession in June 2009.
However, they’ve left a long way to go before they’re within the same territory as they are today — the average used-car price still rang in at 30.1 percent higher than the market average.
It’s a market that’s experiencing “more of a slow returning to normal than what is typically declining,” says Joseph Yoon an analyst for consumer insights at Edmunds, an online car guide. “The prices are still very highly, extremely overvalued.”
Interest rates still hamper used-car affordability
One factor that has influenced the prices of used cars has been the Federal Reserve’s abrasive interest rate hikes in response to inflation rising.
According to Edmunds the average cost of a used-car loan increased from 8.76 percent in July, to 10.25% in December. As loan rates become more expensive people who finance vehicle purchases will find they’re paying higher fees vehicle, despite lower prices on the sticker.
What this means for car buyers
Consumers planning to buy a used car this year might be relieved to see lower costs for windshields but will still find they have to navigate a distended car market. Potential car buyers should anticipate various trends when looking for a used car this year.
Cheaper prices compared to 2022
As demand for used cars decreases, prices will remain in decline. As per J.P. Morgan Research, prices for used cars could fall as much as 10% to 20% in 2023. Should it is the case that the Fed continues to raise rates of interest, prices for vehicles are likely to continue their downward trend.
However, not all cars will be priced at the same time. Smaller cars and pick-ups have seen the least changes in price since January 2022, according to Cox Automotive, an auto data company — while the luxury vehicles and SUVs have had the largest price drops.
In the event of a continuation of an ownership cost higher than normal
When used car prices fall, tempting potential buyers, the surge in interest rates will mean that those who need to finance their purchases will likely continue to feel the pressures from the market that is soaring.
Buyers of cars who take advantage of lower prices and make finance purchases in the midst of higher interest rates might pay more for a car during the term of a loan. In addition to a higher monthly installment, they may be faced with negative equity in the future, finding themselves .
Variable trade-in value fluctuations
Based on J.D. Power, a firm that conducts research and data that tracked trade-ins in December, vehicles were able to receive an average value of just $786 value for trade-ins than the vehicles traded last June. Since dealerships are expected to earn less from sales of used cars the value of trade-ins will continue to fall when compared to last year’s.
Car owners who are looking to sell their current cars should be prepared for lower prices than those last year.
“It’s likely to result in a significant drop of what you’ll receive from the trade-in value versus the price if you were searching for an auto in September,” says Terrance Gandy, the used-car sales manager for Route 44 Toyota in Raynham, Massachusetts.
Increased but relatively low inventory levels
As automakers work towards production levels that are pre-pandemic and used vehicles are becoming more affordable, consumers’ demand will continue to be high due to the car shortage in the times past, as per J.D. Power. This may reduce the stock of used vehicles because more people are choosing to purchase vehicles after waiting out used-car prices that reached their peak in September.
“Even the prices do go downwards,” says Yoon, “for the next few years we’ll be a million of cars short of used automobile inventory.”
However, it will let certain consumers to have a better chance in negotiations over trade-in deals.
“They have a greater chance of getting a deal right now, because dealers must remove these new cars off their lots,” says Gandy. “The ball is at your disposal if you do have a trade-in because dealers are in need of your vehicle.”

About the author: Whitney Vandiver is a writer at NerdWallet which is currently focused on the maintenance of vehicles and car ownership. She’s previously written about small-scale businesses and payments.

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