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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 That Means for Car Buyers
    Used-car prices took a big fall in December, however buying a car now can remain prohibitive for some buyers.
    Written by Whitney Vandiver Writer | Car ownership, car maintenance Whitney Vandiver writes for NerdWallet about ways car owners can save money on ownership and maintenance. She has previously written for the petroleum and gas industries, where she was featured in national publications and international magazines. Whitney started writing because of enjoyment and finds stories that showcase or aid people in the LGBTQ+ community the most rewarding to craft. In her spare time, she’s walking, reading, and walking her Irish Wolfhound. She is based in Houston.

    February 1st 2023

    The article is edited by Julie Myhre-Nunes. Auto loans, consumer credit Julie Myhre-Nunes is an assistant editor assigned to NerdWallet. She has been working in the personal finance space for more than 10 years. Prior to being hired by NerdWallet, Julie oversaw editorial teams at NextAdvisor, Red Ventures and Quote.com. Her personal finance insight has been highlighted on Forbes, The Boston Globe and CNBC throughout the years. Julie’s writings have been featured through USA Today, Business Insider and Wired Insights, among others. Email: .

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    In the aftermath of more than a decade of overheated 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. However, inventories have not yet get to levels pre-pandemic and consumers haven’t yet regained the purchasing power they enjoyed in 2019.
    Experts say that the used car market in this year’s forecast is expected to continue to grow, consumers need to have realistic expectations of what car buying will look like in 2023.
    December saw a record decrease in the cost of used cars
    According to a report published in January 2023 by CoPilot an app that is personalized for car buying, used-car prices dropped during December, for the 6th consecutive month, dropping 8.8 percent from January 2022. To put it in perspective this drop was the largest annual drop the used car market has experienced since the final month during the Great Recession in June 2009.
    But they’ve have a ways to go before they’re within the same territory as they are today The average used car cost was 30.1% higher than the market average.
    It’s a market that’s witnessing “more of a slow return to normalcy than is typically declining,” says Joseph Yoon an analyst for consumer insights at Edmunds the online guide to cars. “The prices are still very high, extremely, and very overvalued.”
    The current interest rates are a barrier to used car affordability
    One factor that has influenced the prices of used cars is the Federal Reserve’s aggressive rate of interest hikes in response to inflation rising.
    According to Edmunds the average interest rate for a used-car loan increased from 8.76% in July to 10.25% in December. As loan rates increase, consumers who finance vehicle purchases will find they’re paying more , despite the lower price of the sticker.
    What does this mean for car buyers
    People who are planning to purchase an used vehicle this year could be happy to see lower costs for windshields however they will have to navigate a distended car market. Prospective buyers need to anticipate certain trends when they shop for a used vehicle this year.
    Lower prices than 2022
    As the demand for cars used is decreasing, prices are expected to continue to drop. According to J.P. Morgan Research, prices for used vehicles could drop as high as 10 20 to 20% by 2023. If you believe that the Fed continues to raise rates of interest, prices for vehicles will likely keep their downward trend.
    However, not all models will drop in price at the same rate. Pickups and compact cars have seen the smallest change in price in the last year, according to Cox Automotive, an auto company that collects data — while high-end cars and SUVs have experienced 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 rise in interest rates means that consumers who require financing for their purchases are likely to feel the strain from the market that is soaring.
    Car buyers who profit of lower prices and make finance purchases in the midst of increased interest rates could pay more for their car for the duration of the loan. In addition to a higher monthly payment, they could have negative equity at the end of the tunnel, finding themselves .
    Variable trade-in value fluctuations
    According to J.D. Power the research and data firm that tracked trade-ins in December, vehicles were able to receive an average value of just $786 value for trade-ins than the vehicles that were traded in June. Since dealerships are expected to earn less from used car sales, trade-in values will continue to decrease compared to the previous year.
    Car owners who are looking to trade in their current vehicles should expect lower values than what was available in the previous year.
    “It’s going to be a significant drop of what you’ll get from the trade-in price compared to if you were looking for an auto at the end of September” says Terrance Gandy as the manager of used car sales in Route 44 Toyota in Raynham, Massachusetts.
    Increased but relatively low inventory levels
    Automakers are working towards pre-pandemic production levels and used cars are getting more affordable, the consumer demand is still expected to be strong following the shortage of vehicles in years past, according to J.D. Power. This may reduce the stock of used vehicles because more people are choosing to buy cars after waiting for used car prices to drop, which peaked in September.
    “Even if prices do come down,” says Yoon, “for the foreseeable future we’ll still be millions of units short on used automobile inventory.”
    However, it will let some consumers be in a stronger position in negotiations over trade-in deals.
    “They have a greater chance of getting a deal right now because dealers have to get these [new] cars off their lots,” says Gandy. “The ball is kind of in your hands if do have a trade-in because right now dealers want your car.”

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

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