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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 This Mean for Car Buyers
The prices of used cars saw a huge fall in December, however buying a car now can remain prohibitive 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 as well as maintenance. She has previously written for the oil and gas industry where she was 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 enjoys walking and reading with her Irish Wolfhound. Her home is in Houston.
Feb 1st, 2023
Written by Julie Myhre-Nunes, Assistant Assigning Editor Auto loans Consumer credit, auto loans Julie Myhre-Nunes is an assistant editor assigned to NerdWallet. She has worked in the area of personal finance for over 10 years. Before joining NerdWallet, Julie oversaw editorial teams at NextAdvisor, Red Ventures and Quote.com. Personal finance insights from Julie have been featured on 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 decade of soaring prices the used car market was cooled by a few degree in the month of December.
The new trend offers some relief to those who buy cars. However, inventories aren’t yet reach pre-pandemic levels, and consumers still miss the buying power they had in 2019.
While experts say this year’s used-car market is expected to continue to grow the consumers must have realistic expectations about what car buying will look like in 2023.
December saw a record-breaking decrease in the cost of used cars
According to a January 2023 report by CoPilot which is a personal app to help you buy a car, used-car prices decreased during December, for the 6th straight month, dropping 8.8 percent from January 2022. To put it in perspective, this plunge was the biggest annual drop that the used car segment has seen since the end of the Great Recession in June 2009.
However, they’ve left a long way to go before buyers are in a familiar space — the average used-car cost was 30.1 percent more than a normal market price.
Markets are seeing “more of a slow recovery than what you would call traditionally an economic decline,” says Joseph Yoon the consumer insights analyst at Edmunds an online car guide. “The prices are very highly, extremely higher.”
However, interest rates continue to limit used-car access to affordable financing
One of the factors that affect used car prices is the Federal Reserve’s abrasive rate of interest hikes in response to inflation rising.
According to Edmunds the typical cost of a used-car loan grew from 8.76% in July to 10.25% in December. As loan rates rise, consumers who finance vehicle purchases will find they’re paying higher fees car, even with lower sticker prices.
What does this mean for car buyers
Consumers planning to buy a used car this year might be relieved to find lower prices on windshields but will still find they must navigate a crowded car market. Prospective buyers need to anticipate certain trends when they shop for a second-hand vehicle this year.
Cheaper prices compared to 2022
As demand for used cars decreases, prices will remain in decline. According to J.P. Morgan Research, prices for used cars could decrease by 10 20 to 20% by 2023. Should you believe that the Fed continues to increase rates of interest, the cost of vehicles will likely keep their downward trend.
However, not all models are expected to drop in price at the same rate. Pickups and compact cars have seen the smallest change in prices in the last year, as per Cox Automotive, an auto data company — while the luxury cars and SUVs have experienced the most drastic price reductions.
The continuation of a cost that is higher than normal
When used car prices fall making it more attractive to potential buyers the increase in interest rates means that consumers who need to finance their purchases will likely continue to feel the strain from the market that is soaring.
Car buyers who take advantage of falling prices and financing purchases despite higher interest rates might pay more for cars over the life of a loan. In addition to a greater monthly installment, they may have negative equity at the end of the tunnel, finding themselves .
Variable trade-in value fluctuations
As per J.D. Power the data and research firm the trade-in of vehicles in December received the equivalent of $786 more trade-in value than those traded last June. Since dealerships are expected to earn less on used-car sales, trade-in values will continue to fall compared to the previous year.
Car owners who are looking to trade in their current cars should be prepared for lower values than what was available in the previous year.
“It’s expected to represent a substantial drop of what you’re gonna get from the trade-in value versus the price if you were searching for an auto during September.” states Terrance Gandy who is the sales manager for used cars for Route 44 Toyota in Raynham, Massachusetts.
Inventory levels have increased, but remain relatively low. levels
Automakers are working towards production levels that are pre-pandemic and used vehicles are getting more affordable, the consumer demand is still expected to be high following the shortage of vehicles in years past, according to J.D. Power. This could reduce the available stock of used vehicles as more car buyers decide to purchase cars after waiting to see the prices of used cars, which peaked in September.
“Even if prices do come down,” says Yoon, “for the next few years we’ll be millions of units short on used automobile inventory.”
But that will help certain consumers have a better chance in negotiations over trade-in deals.
“They have a greater chance of getting a deal right now, because dealers must remove these new automobiles off their showrooms,” says Gandy. “The ball is kind of at your disposal if you are able to trade in your car since dealers are in need of your vehicle.”
About the writer: Whitney Vandiver is a writer for NerdWallet which is currently focused on car ownership and maintenance. She’s previously written about small-scale businesses and payments.
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