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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
Used car prices saw a massive decline in December, but purchasing a vehicle now could 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 reduce the cost of ownership and maintenance. She was previously a writer in the oil and gas industry, which led to her being featured in national publications and international magazines. Whitney began writing out of a sense of fun and finds stories that showcase or assist the LGBTQ+ community the most satisfying to create. In her spare time, she loves reading and walking with her Irish wolfhound. She is based in Houston.
January 1 Feb 2023
The article is edited by Julie Myhre-Nunes. Auto loans, consumer credit Julie Myhre-Nunes is an assistant assigning editor at NerdWallet. She has been working in the field of personal finance for over 10 years. Prior to being hired by NerdWallet, Julie oversaw editorial teams at NextAdvisor, Red Ventures and Quote.com. Her personal finance insight has been featured by Forbes, The Boston Globe and CNBC throughout the years. Julie’s writing has been published through USA Today, Business Insider and Wired Insights, among others. Email: .
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In the aftermath of more than a decade of prices that were too high, the used-car market cooled by a few temperatures in December.
The current trend is bringing some relief for car buyers. However, inventories have not yet get to levels pre-pandemic and consumers are still unable to enjoy the buying power they had in 2019.
Experts say that the used car market for this year will improve the consumers must have realistic expectations of what buying a car will look like in 2023.
December saw the biggest decrease in the cost of used cars
According to a report published in January 2023 by CoPilot an app that is personalized for buying a used car, used car prices fell during December, for the 6th consecutive month, falling 8.8% since January 2022. To put it in perspective this was the largest annual drop the used-car segment has seen since the end in the Great Recession in June 2009.
But they’ve still left a long way to go before buyers are in a familiar space — the median used-car cost was 30.1 percent more than a market-rate average.
It’s a market that’s experiencing “more of a gradual recovery than what is typically a decline,” says Joseph Yoon an analyst for consumer insights at Edmunds, an online guide to cars. “The prices are very high, extremely, and very higher.”
However, interest rates continue to limit used-car affordability
One factor that has influenced the prices of used cars is the Federal Reserve’s abrasive interest rate hikes in response 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% in December. As loan rates increase, consumers who finance vehicle purchases will pay higher fees , despite the lower price of the sticker.
What this means 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 certain trends when they shop for a used car this year.
Cheaper prices compared to 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 drop as high as 10 20 to 20% by 2023. If the Fed continues to raise rates of interest, the cost of vehicles will likely continue to fall in a downward trend.
However, not all cars are expected to drop in price at the same pace. Pickups and compact cars have seen the least changes in prices since January 2022, as per Cox Automotive, an auto company that collects data — while high-end cars and SUVs have experienced the biggest price decreases.
The continuation of a cost that is higher than normal
When used car prices fall and attract potential buyers, the rise in interest rates means that consumers who require financing for their purchases will continue to feel the pressure from the market that is soaring.
Buyers of cars who take advantage of lower prices and make finance purchases in the midst of rising interest rates may end up paying more for a car for the duration of the loan. In addition to a greater monthly payment, they could face negative equity later, finding themselves .
Variable trade-in value fluctuations
Based on J.D. Power, a research and data firm, trade-in 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 on used-car sales the value of trade-ins will continue to decrease in comparison to the prior year.
Car owners looking to trade in their current cars should be prepared for lower prices than those available in the previous year.
“It’s going to be a significant reduction of what you’re gonna get from the trade-in price compared to if you were looking for an automobile at the end of September” states Terrance Gandy, the used-car sales manager at Route 44 Toyota in Raynham, Massachusetts.
Affluent, but relatively low inventory levels
While automakers are working toward pre-pandemic production levels and used vehicles are becoming more affordable, consumers’ demand will continue to be strong following the car shortage in the previous years, according to J.D. Power. This may reduce the inventory of used cars as more car buyers decide to buy cars after waiting out used-car prices which reached their highest in September.
“Even if prices do come downwards,” says Yoon, “for the next few years, we’re going to be a million of cars short of used car inventory.”
This will allow some consumers gain a leg up when it comes to bargaining offers for trade-ins.
“They have a much better likelihood of negotiating now since dealers need to take these cars off their lots,” says Gandy. “The ball is in your hands if are able to trade in your car because right now dealers want your vehicle.”
About the author: Whitney Vandiver is a writer at NerdWallet which is currently focusing on the maintenance of vehicles and car ownership. She’s written previously about small business and payments.
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