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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 fall in December, however buying a car now can still be 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 was previously a writer in the oil and gas industry, which led to her being recognized in national newspapers as well as international magazines. Whitney became a writer out of a sense of fun and believes that stories that celebrate or aid people in the LGBTQ+ community the most satisfying to write. In her spare time, she’s walking, reading, and walking her Irish Wolfhound. Her home is in Houston.
Feb 1st 2023
Written by Julie Myhre-Nunes, Auto loans and consumer credit Julie Myhre-Nunes is an assistant assigning editor at NerdWallet. She has been working in the personal finance space for over 10 years. Prior to being hired by NerdWallet, Julie oversaw editorial teams at NextAdvisor, Red Ventures and Quote.com. Julie’s personal financial insights have been highlighted in Forbes, The Boston Globe and CNBC through the years. Julie’s writings have been featured by USA Today, Business Insider and Wired Insights, among others. Email: .
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Following more than one year of prices that were too high The used-car market began to cool by several degrees in December.
The trend brings some relief to those who buy cars. However, inventories have not yet get to levels pre-pandemic and consumers are still unable to enjoy the buying power they had in 2019.
While experts say this year’s used-car market will continue to improve the consumers must have realistic expectations about what car buying will look like in 2023.
December saw a record-breaking drop in used-car prices
According to a report published in January 2023 from CoPilot an app that is personalized for car buying, used-car prices decreased during December, for the 6th time in a row month, dropping 8.8% since January 2022. For a better understanding, this plunge was the biggest annual drop the used-car segment has seen since the last month in the Great Recession in June 2009.
But they’ve still have a ways to go before buyers are in a familiar space — the average used-car price still rang in at 30.1 percent higher than the market average.
It’s a market that’s experiencing “more of a slow return to normalcy than what one would normally consider declining,” says Joseph Yoon the consumer insights analyst at Edmunds, an online guide to cars. “The prices are still very highly, extremely elevated.”
Interest rates still hamper used-car accessibility
One of the factors that affect used car prices has been the Federal Reserve’s aggressive increase in interest rates due to rising inflation.
According to Edmunds the typical cost of a used-car loan grew from 8.76 percent in July to 10.25 percent in December. As loan rates become more expensive people who finance vehicle purchases will pay more vehicle, despite lower price of the sticker.
What this means for car buyers
People who are planning to purchase a used car this year may be pleased to see lower windshield prices but will still find they have to navigate a distended car market. Potential car buyers should anticipate several trends when shopping for a second-hand car this year.
Cheaper prices compared to 2022
As the demand for cars used wanes, prices should continue to drop. According to J.P. Morgan Research, prices for used cars could decrease by 10 percent 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.
But not all car models will be priced at the same pace. Compact cars and pickups have seen the smallest change in price from January 2022 in the opinion of Cox Automotive, an auto company that collects data — while the luxury cars 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 surge in interest rates will mean that those who require financing for their purchases will continue to feel the pressure of an overpriced market.
Car buyers who take advantage of the falling prices and make finance purchases in the midst of increased interest rates could pay more for their car for the duration of the loan. In addition to a greater monthly payment, they could face negative equity later 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 were able to receive an average value of just $786 value for trade-ins than the vehicles traded last June. Because dealerships anticipate earning less from sales of used cars and trade-in value are expected to continue to decline when compared to last year’s.
Car owners who are looking to trade in their current vehicles should expect lower prices than the ones offered in the past year.
“It’s likely to result in a significant drop of what you’re gonna get from the trade-in value versus the price if you were searching for a car at the end of September” says Terrance Gandy who is the sales manager for used cars at Route 44 Toyota in Raynham, Massachusetts.
Inventory levels have increased, but remain relatively low. levels
Automakers are working towards pre-pandemic production levels and used vehicles are getting more affordable, the consumer need for cars is expected to be high following the vehicle shortage of years past, according to J.D. Power. This will reduce the stock of used vehicles since more buyers are likely to purchase vehicles after waiting for used car prices to drop that reached their peak in September.
“Even even if prices come down,” says Yoon, “for the foreseeable future we’ll still be a million of units short on used cars.”
This will allow certain consumers to have a better chance in negotiations over trade-in deals.
“They have a better likelihood of negotiating now, because dealers must take these automobiles off their showrooms,” says Gandy. “The ball is kind of in your court if you do decide to trade-in your vehicle because right now dealers are in need of your car.”
About the author: Whitney Vandiver is a writer for 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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