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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 This Mean for Car Buyers
The prices of used cars saw a huge drop in December, but buying a car today could remain prohibitive for some buyers.
by Whitney Vandiver Writer | Car ownership, car maintenance Whitney Vandiver writes for NerdWallet on ways that car owners can save money on ownership and maintenance. She was previously a writer in the petroleum and gas industries, where she was featured in national publications and international magazines. Whitney began writing out of a sense of fun and believes that stories that celebrate or help people in the LGBTQ+ community the most satisfying to write. When she’s not writing, she enjoys reading and walking with her Irish wolfhound. She’s based in Houston.
Feb 1 2023
Edited by Julie Myhre-Nunes, Assistant Assigning Editor Auto loans and consumer credit Julie Myhre-Nunes is an assistant assigning editor at NerdWallet. She has worked in the personal finance space for more than 10 years. Before being hired by NerdWallet, Julie oversaw editorial teams at NextAdvisor, Red Ventures and Quote.com. Julie’s personal financial insights have been highlighted by Forbes, The Boston Globe and CNBC throughout 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 decade of overheated prices the used car market was cooled by several degrees in December.
The current trend is bringing some relief to car buyers. However, inventories aren’t yet reach pre-pandemic levels, and consumers are still unable to enjoy the purchasing power they enjoyed in the year 2019.
Experts say that this year’s used-car market is expected to continue to grow Consumers must have realistic expectations about 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 from CoPilot an app that is personalized for buying a used car, used car prices dropped to a record low in the month of December. It was the sixth straight month, falling 8.8% since January 2022. To put it in perspective, this plunge was the largest annual drop the used car market has experienced since the last month during the Great Recession in June 2009.
However, they’ve have a ways to go before they’re within the same territory as they are today — the average used-car price was 30.1 percent higher than a market-rate average.
The market is witnessing “more of a slow recovery than you would call traditionally an economic decline,” says Joseph Yoon an analyst for consumer insights at Edmunds an online car guide. “The prices are still very high, extremely, and very higher.”
However, interest rates continue to limit used-car access to affordable financing
One factor that has influenced the prices of used cars has been the Federal Reserve’s aggressive interest rate hikes in response to the rising rate of inflation.
According to Edmunds the average interest rate for a used-car loan was up from 8.76 percent in July to 10.25 percent in December. As loan rates rise those who finance car purchases will be paying higher fees vehicle, despite lower sticker prices.
What does this mean for car buyers
Consumers planning to buy a used car this year could be happy to see lower costs for windshields but they’ll still have to navigate a distended car market. Prospective buyers need to anticipate several trends when shopping for a second-hand vehicle this year.
Lower prices than 2022
As demand for used cars is decreasing, prices are expected to continue to drop. According to J.P. Morgan Research, the cost of used cars could decrease by 10% to 20% in 2023. In the event that the Fed continues to raise interest rates, vehicle prices will likely continue to fall in a downward trend.
But not all car models will be priced at the same pace. Compact cars and pickups have seen the least changes in prices from January 2022 as per Cox Automotive, an auto company that collects data — while the luxury cars and SUVs have experienced the most drastic price reductions.
The continuation of a cost that is higher than normal
As used-car prices drop making it more attractive to potential buyers the rise in interest rates means that consumers who require financing for their purchases are likely to feel the strain of the inflated market.
Car buyers who profit of lower prices and make finance purchases in the midst of higher interest rates might pay more for cars over the life of a loan. In addition to a higher monthly payment, they could be faced with negative equity in the future when they find themselves .
Variable trade-in value fluctuations
According to J.D. Power which is a research and data firm the trade-in of vehicles in December were able to receive an average of $786 less trade-in value than those that were traded in June. Since dealerships are expected to earn less from sales of used cars, trade-in values will continue to fall compared to the previous year.
People who plan to trade in their current cars should be prepared for lower values than what was 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 automobile at the end of September” says Terrance Gandy who is the sales manager for used cars for 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, consumer need for cars is expected to be high due to the shortage of vehicles in previous years, according to J.D. Power. This could reduce the available inventory of used cars because more people are choosing to buy cars after waiting for used car prices to drop that reached their peak in September.
“Even if prices do come lower,” says Yoon, “for the foreseeable future, we’re going to be a million of vehicles short on used automobile inventory.”
This will allow some consumers gain a leg up when bargaining trade-in offers.
“They have a greater chance of negotiating right now, because dealers must take these automobiles off their showrooms,” says Gandy. “The ball is kind of in your hands if do have a trade-in because right now dealers are in need of your car.”
About the author: Whitney Vandiver is a writer for NerdWallet which is currently focused on car ownership and maintenance. She has previously written about small business and payments.
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