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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 Does That Mean for Car Buyers
Used-car prices took a big fall in December, however buying a car today could still be expensive for some 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 was previously a writer in the petroleum and gas industries, where she was recognized in national newspapers as well as international magazines. Whitney became a writer out of enjoyment and finds stories that highlight or aid people in the LGBTQ+ community the most satisfying to create. When she’s not writing, she enjoys reading and walking with her Irish Wolfhound. She is based in Houston.
January 1st 2023
The article is edited by Julie Myhre-Nunes. Assistant Assigning editor Auto loans and consumer credit Julie Myhre-Nunes works as an assistant assigning editor at NerdWallet. She has worked in the personal finance space for over 10 years. Prior to 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 writings have been featured by 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 was cooled by a few degrees in December.
The trend brings some relief for car buyers. But inventories have yet to get to levels pre-pandemic and consumers still miss the purchasing power they enjoyed in 2019.
While experts say this year’s used-car market is expected to continue to grow Consumers must have realistic expectations of the way that car purchases will play like in 2023.
December saw a record-breaking decrease in the cost of used cars
According to a report from January 2023 by CoPilot, a personalized app for car buying, used-car prices decreased during December, for the 6th straight month, falling 8.8 percent from January 2022. For a better understanding this drop was the largest annual drop the used car market has experienced since the final 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 median used-car price still rang in at 30.1 percent more than a normal market price.
The market is seeing “more of a gradual returning to normal than is typically a decline,” says Joseph Yoon the consumer insights analyst at Edmunds, an online guide to cars. “The rates are still extremely high, extremely, and very higher.”
Interest rates still hamper used-car access to affordable financing
One factor that has influenced the prices of used cars has been the Federal Reserve’s abrasive increase in interest rates due to rising inflation.
According to Edmunds, the average interest rate for a used-car loan was up from 8.76% in July to 10.25 percent in December. As loan rates increase, consumers who finance vehicle purchases will be paying more car, even with lower price of the sticker.
What does this mean for car buyers
Consumers planning to buy a used car this year could be happy to find lower prices on windshields however they will need to navigate an overcrowded 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 remain in decline. According to J.P. Morgan Research, prices for used vehicles could decrease by 10 percent to 20% by 2023. In the event that you believe that the Fed continues to increase interest rates, vehicle prices are likely to continue their downward trend.
However, not all cars will drop in price at the same time. Smaller cars and pick-ups have seen the least changes in cost in the last year, as per Cox Automotive, an auto data company — while high-end vehicles and SUVs have experienced the largest price drops.
Continuation of higher-than-normal ownership cost
With the price of used cars dropping and attract potential buyers, the increase in interest rates will mean consumers who require financing for their purchases are likely to feel the pressures of an overpriced market.
Car buyers who take advantage of the falling prices and financing purchases despite rising interest rates may end up paying more for cars during the term of a loan. Along with a larger monthly installment, they may be faced with negative equity in the future and end up .
Values for trade-ins fluctuate
Based on J.D. Power which is a firm that conducts research and data the trade-in of vehicles in December were able to receive an average of $786 less value for trade-ins than the vehicles that were traded in June. Because dealerships anticipate earning less from sales of used cars, trade-in values will continue to decrease when compared to last year’s.
Car owners looking to sell their current cars should be prepared for lower prices than those offered in the past year.
“It’s going to be a substantial drop of what you’ll receive from the trade-in value versus when you were in search of a car at the end of September” states Terrance Gandy, the used-car sales manager for Route 44 Toyota in Raynham, Massachusetts.
Inventory levels have increased, but remain relatively low. levels
Automakers are working towards the production levels of pre-pandemics and used vehicles are getting more affordable, the consumer demand will continue to be high following the vehicle shortage of previous years, according to J.D. Power. This may reduce the vehicles for sale since more buyers are likely to purchase cars after waiting to see the prices of used cars that reached their peak in September.
“Even even if prices come down,” says Yoon, “for the next few years we’ll be millions of cars short of used cars.”
This will allow certain consumers gain a leg up when it comes to bargaining offers for trade-ins.
“They have a better chance of getting a deal right now, because dealers must get these [new] cars off their lots,” says Gandy. “The ball is kind of at your disposal if you do decide to trade-in your vehicle because these dealers need your vehicle.”
About the author: Whitney Vandiver is a writer for NerdWallet which is currently focused on car ownership and maintenance. She’s previously written about small business and payments.
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