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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 That Mean for Car Buyers
The prices of used cars saw a huge fall in December, however buying a car today could still be prohibitive for certain buyers.
by Whitney Vandiver Writer | Car ownership, car maintenance Whitney Vandiver writes for NerdWallet on ways that car owners can reduce the cost of ownership and maintenance. She has previously written for the oil and gas industry where she was featured in national publications and international magazines. Whitney became a writer out of enjoyment and finds stories that showcase or assist people in the LGBTQ+ community the most satisfying to create. When she’s not writing, she loves walking, reading, and walking her Irish Wolfhound. Her home is in Houston.
Feb 1st 2023
Edited by Julie Myhre-Nunes Auto loans and consumer credit Julie Myhre-Nunes is an assistant editor assigned to NerdWallet. She has worked in the field of personal finance for more than 10 years. Before joining NerdWallet, Julie oversaw editorial teams at NextAdvisor, Red Ventures and Quote.com. Her personal finance insight has been featured on Forbes, The Boston Globe and CNBC over the years. Julie’s articles have been published through USA Today, Business Insider and Wired Insights, among others. Email: .
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Following more than one decade of soaring prices The used-car market began to cool by a few temperatures in December.
The trend brings some relief to those who buy cars. However, inventories aren’t yet get to levels pre-pandemic and consumers still miss the purchasing power they enjoyed in 2019.
Although experts predict that the used car market for this year will continue to improve the consumers must have realistic expectations about what car buying will look like in 2023.
December saw a record drop in used-car prices
According to a report from January 2023 from CoPilot an app that is personalized for car buying, used-car prices fell during December, for the 6th straight month, dropping 8.8% since January 2022. To give some perspective this was the highest annual decline the used car market has experienced since the last month of the Great Recession in June 2009.
But they’ve still got a way to go before they’re in a familiar space — the median used-car cost was 30.1 percent more than a normal market price.
Markets are witnessing “more of a gradual return to normalcy than what is typically an economic decline,” says Joseph Yoon the consumer insights analyst at Edmunds, an online car guide. “The prices are very high, extremely, and very higher.”
However, interest rates continue to limit used-car accessibility
One of the factors that affect used car prices is the Federal Reserve’s abrasive increase in interest rates due to inflation rising.
According to Edmunds the typical rate of interest 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 for the , despite the lower price of the sticker.
What does this mean for car buyers
Consumers who plan to purchase a used car this year may be pleased to find lower prices on windshields but will still find they have to navigate a distended car market. Prospective buyers need to anticipate several trends when shopping for a used vehicle this year.
Lower prices than 2022
As demand for used cars decreases, prices will remain in decline. According to J.P. Morgan Research, the cost of used cars could decrease by 10 20 to 20% by 2023. In the event that the Fed continues to increase rates of interest, the cost of vehicles will likely continue to fall in a downward trend.
But not all car models are expected to drop in price at the same pace. Pickups and compact cars have seen the smallest change in cost from January 2022 according to Cox Automotive, an auto company that collects data — while high-end vehicles and SUVs have had the biggest price decreases.
Continuation of higher-than-normal ownership cost
With the price of used cars dropping, tempting potential buyers, the surge in interest rates means that consumers who need to finance their purchases are likely to feel the pressures of an overpriced market.
Buyers of cars who take advantage of lower prices and financing purchases despite higher interest rates might pay more for cars for the duration of the loan. In addition to a higher monthly installment, they may be faced with negative equity in the future and end up .
Fluctuating trade-in values
As per J.D. Power which is a firm that conducts research and data the trade-in of vehicles in December received an average of $786 less trade-in value than those which were sold in June. Since dealerships are expected to earn less from used car sales and trade-in value will continue to decrease when compared to last year’s.
People who plan to sell their current models should anticipate lower prices than those last year.
“It’s likely to result in a significant drop of what you’re gonna get from the trade-in price compared to when you were in search of an auto at the end of September” says Terrance Gandy, the used-car sales manager in Route 44 Toyota in Raynham, Massachusetts.
Affluent, but relatively low inventory levels
While automakers are working toward production levels that are pre-pandemic and used cars are becoming more affordable, consumer demand will continue to be high following the shortage of vehicles in years past, according to J.D. Power. This could reduce the available inventory of used cars as more car buyers decide to purchase cars after waiting to see the prices of used cars, which peaked in September.
“Even if prices do come lower,” says Yoon, “for the foreseeable future we’ll be a million of units short on used automobile inventory.”
However, it will let certain consumers be in a stronger position when it comes to bargaining offers for trade-ins.
“They have a better chance of getting a deal right now since dealers need to get these [new] cars off their lots,” says Gandy. “The ball is kind of in your hands if do decide to trade-in your vehicle because dealers are in need of your vehicle.”
About the author: Whitney Vandiver is a writer at NerdWallet which is currently focused on maintenance and ownership of cars. She’s written previously about small business and payments.
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