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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 saw a massive decline in December, but buying a car today 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 save money on ownership as well as maintenance. She was previously a writer in the oil and gas industry, which led to her being featured in national publications as well as international magazines. Whitney started writing because of a sense of fun 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’s based in Houston.
Feb 1st 2023
The article is edited by Julie Myhre-Nunes. Auto loans, consumer credit Julie Myhre-Nunes works as an assistant assigning editor at NerdWallet. She has been working in the field of personal finance for over ten years. Before joining NerdWallet, Julie oversaw editorial teams at NextAdvisor, Red Ventures and Quote.com. Personal finance insights from Julie have been featured in Forbes, The Boston Globe and CNBC through the years. Julie’s writing has been published by 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 began to cool by several temperatures in December.
The current trend is bringing some relief to car buyers. However, inventories have not yet get to levels pre-pandemic and consumers still miss the purchasing power they enjoyed in 2019.
While experts say the used car market for this year is expected to continue to grow the consumers must have realistic expectations of what buying a car will look like in 2023.
December saw the biggest drop in used-car prices
According to a report from January 2023 by CoPilot, a personalized app for buying a used car, used car prices dropped during December, for the 6th consecutive month, dropping 8.8 percent since January 2022. For a better understanding this drop was the largest annual drop the used car market has experienced since the end in the Great Recession in June 2009.
But they’ve still have a ways to go before buyers are within the same territory as they are today — the average used-car cost was 30.1 percent more than a normal market price.
The market is experiencing “more of a gradual return to normalcy than you would call traditionally an economic decline,” says Joseph Yoon an analyst for consumer insights at Edmunds the online car guide. “The prices are still very, very, very much elevated.”
The current interest rates are a barrier to used car access to affordable financing
One of the factors that affect used car prices has been the Federal Reserve’s abrasive interest rate hikes in response to rising inflation.
According to Edmunds the typical interest rate for a used-car loan was up from 8.76 percent in July to 10.25% in December. As loan rates become more expensive people who finance vehicle purchases will pay more car, even with lower prices on the sticker.
What does this mean for car buyers
Consumers who plan to purchase an used vehicle this year could be happy to find lower prices on windshields however they will need to navigate an overcrowded car market. Buyers of used cars should be aware of certain trends when they shop for a used car this year.
Prices are lower compared to 2022.
As the demand for cars used wanes, prices should continue to drop. Based on J.P. Morgan Research, prices for used cars could fall as much as 10 20 to 20% by 2023. In the event that you believe that the Fed continues to increase rates of interest, the cost of vehicles will likely keep their downward trend.
But not all car models will drop in price at the same time. Smaller cars and pick-ups have seen the least changes in cost in the last year, according to Cox Automotive, an auto data firm — while the luxury vehicles and SUVs have seen the biggest price decreases.
In the event of a continuation of an ownership cost higher than normal
With the price of used cars dropping and attract potential buyers, the increase in interest rates will mean consumers who have to finance their purchases will likely continue to feel the pressure of an overpriced market.
Buyers of cars who take advantage of lower prices and financing purchases despite rising interest rates may end up paying more for a car during the term of a loan. Along with a larger monthly payment, they could be faced with negative equity in the future when they find themselves .
Variable trade-in value fluctuations
According to J.D. Power, a data and research firm the trade-in of vehicles in December received the equivalent of $786 more in value for trade-ins than the vehicles which were sold in June. Since dealerships are expected to earn less from used car sales, trade-in values will continue to fall when compared to last year’s.
Car owners who are 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 value of your trade-in the price if you were searching for a car during September.” states Terrance Gandy, the used-car sales manager in Route 44 Toyota in Raynham, Massachusetts.
Increased but relatively low inventory levels
As automakers work towards the production levels of pre-pandemics and used cars are becoming more affordable, consumer demand will continue to be strong following the vehicle shortage of times past, as per J.D. Power. This may reduce the inventory of used cars as more car buyers decide to purchase vehicles after waiting out used-car prices which reached their highest in September.
“Even even if prices come down,” says Yoon, “for the next few years, we’re going to be millions of vehicles short on used cars.”
However, it will let certain consumers have a better chance when it comes to bargaining offers for trade-ins.
“They have a better chance of negotiating right now, because dealers must remove these new cars off their lots,” says Gandy. “The ball is kind of in your hands if do decide to trade-in your vehicle since dealers are in need of your car.”
About the writer: Whitney Vandiver is a writer at NerdWallet currently focusing on car ownership and maintenance. She’s written previously about payments for small businesses and payment.
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