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Used Car Prices Are Dropping What Does That Mean for Car Buyers
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Used Car Prices Are Dropping What Does This Mean for Car Buyers
Used car prices saw a massive decline in December, but purchasing a vehicle now could still be expensive for certain 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 has previously written for the oil and gas industry, where she was published in national journals and international magazines. Whitney began writing out of a sense of fun and believes that stories that celebrate or aid the LGBTQ+ community the most rewarding to craft. When she’s not writing, she loves reading and walking with her Irish wolfhound. She is based in Houston.
February 1 2023
The article is edited by Julie Myhre-Nunes. Assistant Assigning editor Auto loans Consumer credit, auto loans Julie Myhre-Nunes works as an assistant editor assigned to NerdWallet. She has worked in the field 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 over the years. Julie’s writing has been published by USA Today, Business Insider and Wired Insights, among others. Email: .
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In the aftermath of more than a year of soaring prices, the used-car market cooled by a few degree in the month of December.
The current trend is bringing some relief for car buyers. However, inventories aren’t yet be at levels that are comparable to pre-pandemic, and consumers are still unable to enjoy the buying power they had in 2019.
Although experts predict that the used car market in this year’s forecast will improve the consumers must be realistic about the way that car purchases will play like in 2023.
December saw the biggest decline in used car prices
According to a report published in January 2023 by CoPilot an app that is personalized for buying a used car, used car prices dropped during December, for the 6th straight month, falling 8.8% since January 2022. To put it in perspective, this plunge was the highest annual decline the used-car segment has seen since the end of the Great Recession in June 2009.
But they’ve have a ways to go before they’re in familiar territory — the median used-car price was 30.1% higher than a normal market price.
Markets are witnessing “more of a gradual returning to normal than what one would normally consider an economic decline,” says Joseph Yoon the consumer insights analyst at Edmunds an online guide to cars. “The rates are still extremely highly, extremely overvalued.”
Interest rates still hamper used-car affordability
One influence on used-car prices is the Federal Reserve’s aggressive rate of interest hikes in response to the rising rate of inflation.
According to Edmunds the average interest rate for a used-car loan increased from 8.76 percent in July, to 10.25% in December. As loan rates increase, consumers who finance vehicle purchases will pay more vehicle, despite lower sticker prices.
What this means for car buyers
Consumers who plan to purchase a second-hand car in the coming year may be pleased to see lower costs for windshields however they will have to navigate a distended car market. Buyers of used cars should be aware of several trends when shopping for a second-hand vehicle this year.
Lower prices than 2022
As the demand for cars used is decreasing, prices are expected to be expected to continue to fall. As per J.P. Morgan Research, the cost of used cars could fall as much as 10 percent to 20% by 2023. If it is the case that the Fed continues to increase interest rates, vehicle prices will likely keep their downward trend.
However, not all models are expected to drop in price at the same pace. Pickups and compact cars have had the smallest changes in price since January 2022, in the opinion of Cox Automotive, an auto data firm — while the luxury cars and SUVs have experienced the largest price drops.
The continuation of a cost that is higher than normal
When used car prices fall and attract potential buyers, the rise in interest rates will mean that those who need to finance their purchases will likely continue to feel the pressure of the inflated market.
Car buyers who profit of falling prices and financing purchases despite rising interest rates may end up paying more for a car for the duration of the loan. In addition to a greater monthly cost, they could be faced with negative equity in the future and end up .
Variable trade-in value fluctuations
According to J.D. Power the research and data firm that tracked trade-ins in December, vehicles received an average value of just $786 in value when they were that were traded in June. Since dealerships are expected to earn less on used-car sales the value of trade-ins will continue to decrease when compared to last year’s.
Car owners looking to sell their current models should anticipate lower values than what was offered in the past year.
“It’s likely to result in a substantial drop of what you’re gonna get from the trade-in value versus the price if you were searching for an auto in September,” states Terrance Gandy, the used-car sales manager for Route 44 Toyota in Raynham, Massachusetts.
Increased but relatively low inventory levels
Automakers are working towards the production levels of pre-pandemics and used cars are becoming more affordable, consumers’ need for cars is expected to be high due to the car shortage in the times past, as per J.D. Power. This could reduce the available stock of used vehicles since more buyers are likely to purchase vehicles after waiting out used-car prices that reached their peak in September.
“Even even if prices come downwards,” says Yoon, “for the foreseeable future we’ll be a million of units short on used automobile inventory.”
But that will help certain consumers be in a stronger position when bargaining trade-in offers.
“They have a better chance of negotiating right now, because dealers must take these cars off their lots,” says Gandy. “The ball is at your disposal if you do decide to trade-in your vehicle because dealers want your car.”
About the author: Whitney Vandiver is a writer for NerdWallet which is currently focused on maintenance and ownership of cars. She has previously written about payments for small businesses and payment.
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