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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 now can remain prohibitive for certain buyers.
By Whitney Vandiver Writer | Car ownership, maintenance of cars Whitney Vandiver writes for NerdWallet on ways that car owners can save money on ownership and maintenance. She previously wrote in the oil and gas industry where she was recognized in national newspapers as well as international magazines. Whitney started writing because of enjoyment and finds stories that showcase or aid people in the LGBTQ+ community the most satisfying to create. In her spare time, she loves walking and reading with her Irish wolfhound. She’s based in Houston.
January 1st Feb 2023
Written by Julie Myhre-Nunes, Assistant Assigning Editor Auto loans and consumer credit Julie Myhre-Nunes is an assistant editor assigned to NerdWallet. She has been working in the area of personal finance for more than 10 years. Before becoming a part of NerdWallet, Julie oversaw editorial teams at NextAdvisor, Red Ventures and Quote.com. Julie’s personal financial insights have been featured by Forbes, The Boston Globe and CNBC through the years. Julie’s articles have been published in USA Today, Business Insider and Wired Insights, among others. Email: .
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After more than a year of prices that were too high, the used-car market cooled by several temperatures in December.
The new trend offers some relief to those who buy cars. However, inventories aren’t yet get to levels pre-pandemic and consumers haven’t yet regained the purchasing power they had in 2019.
While experts say this year’s used-car market is expected to continue to grow, consumers need to be realistic 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 by CoPilot which is a personal app to help you buy a car, used-car prices fell in December for the sixth time in a row month, with a drop of 8.8% since January 2022. To put it in perspective this was the biggest annual drop that the used car segment has seen since the end of the Great Recession in June 2009.
But they’ve left a long way to go before buyers are in familiar territory — the median used-car price still rang in at 30.1 percent higher than a normal market price.
It’s a market that’s seeing “more of a slow recovery than what one would normally consider declining,” says Joseph Yoon the consumer insights analyst at Edmunds, an online car guide. “The prices are still very highly, extremely elevated.”
The current interest rates are a barrier to 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 rate of interest for a used car loan increased from 8.76% in July to 10.25% in December. As loan rates rise people who finance vehicle purchases will pay more for the , despite the lower sticker prices.
What this means for car buyers
Consumers planning to buy a used car this year could be happy to find lower prices on windshields but will still find they need to navigate an overcrowded car market. Buyers of used cars should be aware of various trends when looking for a used car this year.
Lower prices than 2022
If the demand for used cars wanes, prices should remain in decline. Based on J.P. Morgan Research, the cost of used cars could decrease by 10% to 20% in 2023. Should you believe that the Fed continues to increase interest rates, vehicle prices will likely keep their downward trend.
However, not all models will drop in price at the same rate. Compact cars and pickups have seen the least changes in price from January 2022 as per Cox Automotive, an auto data company — while high-end cars and SUVs have experienced the largest price drops.
The continuation of a cost that is higher than normal
When used car prices fall making it more attractive to potential buyers the rise in interest rates will mean consumers who need to finance their purchases will likely continue to feel the strain of an overpriced market.
Car buyers who profit of lower prices and make finance purchases in the midst of rising interest rates may end up paying more for cars over the life of a loan. In addition to a higher monthly installment, they may have negative equity at the end of the tunnel, finding themselves .
Fluctuating trade-in values
Based on J.D. Power the firm that conducts research and data that tracked trade-ins in December, vehicles were able to receive an average of $786 less value when they were which were sold in June. Because dealerships anticipate earning less from sales of used cars and trade-in value will continue to fall in comparison to the prior year.
People who plan to sell their current cars should be prepared for lower prices than the ones last year.
“It’s expected to represent a significant reduction of what you’re gonna get from the value of your trade-in if you were looking for an automobile in September,” says Terrance Gandy as the manager of used car sales for Route 44 Toyota in Raynham, Massachusetts.
Inventory levels have increased, but remain relatively low. levels
As automakers work towards the production levels of pre-pandemics and used vehicles are becoming more affordable, consumer need for cars is expected to be high following the vehicle shortage of years past, according to J.D. Power. This may reduce the stock of used vehicles since more buyers are likely to purchase vehicles after waiting for used car prices to drop which reached their highest in September.
“Even the prices do go downwards,” says Yoon, “for the foreseeable future we’ll still be millions of cars short of used car inventory.”
But that will help some consumers have a better chance in negotiations over trade-in deals.
“They have a greater likelihood of negotiating now because dealers have to remove these new automobiles off their showrooms,” says Gandy. “The ball is in your court if you do decide to trade-in your vehicle because right now dealers are in need of your car.”
About the author: Whitney Vandiver is a writer at NerdWallet currently focusing on car ownership and maintenance. She’s previously written about payments for small businesses and payment.
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