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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 drop in December, but buying a car now can still be expensive for some buyers.
by Whitney Vandiver Writer | Car ownership, car maintenance Whitney Vandiver writes for NerdWallet about ways car owners can save money on ownership and maintenance. She was previously a writer in the oil and gas industry where she was published in national journals and international magazines. Whitney started writing because of a sense of fun and finds stories that showcase or help those in the LGBTQ+ community the most rewarding to craft. If she’s not working, she’s walking, reading, and walking her Irish wolfhound. Her home is in Houston.
January 1st Feb 2023
The article is edited by Julie Myhre-Nunes. Assistant Assigning editor Auto loans, consumer credit Julie Myhre-Nunes works as an assistant editor assigned to NerdWallet. She has worked in the personal finance space for over ten 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 throughout the years. Julie’s articles have been published in USA Today, Business Insider and Wired Insights, among others. Email: .
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In the aftermath of more than a year of prices that were too high The used-car market began to cool by a few degree in the month of December.
The new trend offers some relief for car buyers. However, inventories aren’t yet reach pre-pandemic levels, and consumers haven’t yet regained the purchasing power they had in the year 2019.
Experts say that the used car market in this year’s forecast will continue to improve, consumers need to be realistic about what car buying will look like in 2023.
December saw the biggest drop in used-car prices
According to a January 2023 report from CoPilot, a personalized app for buying a used car, used car prices fell to a record low in the month of December. It was the sixth consecutive month, falling 8.8% since January 2022. To give some perspective, this plunge was the highest annual decline that the used car segment has seen since the end of the Great Recession in June 2009.
However, they’ve have a ways to go before buyers are in familiar territory — the median used-car price was 30.1 percent higher than the market average.
It’s a market that’s experiencing “more of a slow return to normalcy than is typically declining,” says Joseph Yoon an analyst for consumer insights at Edmunds, an online guide to cars. “The rates are still extremely, very, very much elevated.”
However, interest rates continue to limit used-car accessibility
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 grew from 8.76 percent in July, to 10.25 percent in December. As loan rates rise, consumers who finance vehicle purchases will be paying more for the vehicle, despite lower prices on the sticker.
What this means for car buyers
People who are planning to purchase a second-hand car in the coming year could be happy to find lower prices on windshields however they will have to navigate a distended car market. Potential car buyers should anticipate several trends when shopping for a used car this year.
Lower prices than 2022
As the demand for cars used wanes, prices should remain in decline. Based on J.P. Morgan Research, prices for used vehicles could drop as high as 10% to 20% in 2023. In the event that the Fed continues to increase interest rates, vehicle prices are likely to continue their downward trend.
But not all car models will be priced at the same rate. Pickups and compact cars have seen the least changes in cost since January 2022, in the opinion of Cox Automotive, an auto data company — while luxury vehicles and SUVs have had the largest price drops.
The continuation of a cost that is higher than normal
As used-car prices drop and attract potential buyers, the rise in interest rates will mean that those who have to finance their purchases will continue to feel the strain from the market that is soaring.
Car buyers who profit of falling prices and make finance purchases in the midst of rising interest rates may end up paying more for cars for the duration of the loan. In addition to a greater monthly cost, they could be faced with negative equity in the future, finding themselves .
Variable trade-in value fluctuations
As per J.D. Power the firm that conducts research and data the trade-in of vehicles in December were able to receive the equivalent of $786 more in value when they were traded last June. As dealerships expect to earn less from sales of used cars the value of trade-ins will continue to decrease in comparison to the prior year.
Car owners who are looking to trade in their current models should anticipate lower prices than those offered in the past year.
“It’s expected to represent a significant drop of what you’ll receive from the trade-in value versus the price if you were searching for an auto during September.” says Terrance Gandy, the used-car sales manager for 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 getting more affordable, the consumer need for cars is expected to be strong 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 buy cars after waiting to see the prices of used cars, which peaked in September.
“Even the prices do go down,” says Yoon, “for the next few years, we’re going to be millions of cars short of used cars.”
This will allow certain consumers have a better chance when bargaining trade-in offers.
“They have a greater chance of getting a deal right now since dealers need to take these automobiles off their showrooms,” says Gandy. “The ball is in your hands if are able to trade in your car because right now these dealers need your vehicle.”
About the writer: Whitney Vandiver is a writer at NerdWallet which is currently focused on car ownership and maintenance. She’s previously written about small business and payments.
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