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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 drop 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 about ways car owners can save money on ownership as well as maintenance. She has previously written for the petroleum and gas industries, where she was published in national journals as well as international magazines. Whitney began writing out of a sense of fun and finds stories that showcase or help people in the LGBTQ+ community the most satisfying to create. When she’s not writing, she enjoys reading and walking with her Irish wolfhound. Her home is in Houston.
February 1st, 2023
Written by Julie Myhre-Nunes, Auto loans and consumer credit Julie Myhre-Nunes is an assistant editor assigned to NerdWallet. She has been working in the personal finance space for over ten 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 featured on Forbes, The Boston Globe and CNBC throughout 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 soaring prices The used-car market began to cool by a few temperatures in December.
The trend brings some relief for car buyers. However, inventories aren’t yet get to levels pre-pandemic and consumers are still unable to enjoy the buying power they had in 2019.
Although experts predict that this year’s used-car market is expected to continue to grow, consumers need to be realistic about the way that car purchases will play like in 2023.
December saw a record decline in used car prices
According to a report from January 2023 from CoPilot, a personalized app to help you buy a car, used-car prices dropped to a record low in the month of December. It was the sixth time in a row month, falling 8.8 percent since January 2022. To give some perspective, this plunge was the highest annual decline the used-car segment has seen since the end in the Great Recession in June 2009.
However, they’ve left a long way to go before they’re in a familiar space — the average used-car cost was 30.1 percent more than a normal market price.
The market is witnessing “more of a gradual recovery than is typically an economic decline,” says Joseph Yoon an analyst for consumer insights at Edmunds, an online car guide. “The rates are still extremely highly, extremely higher.”
Interest rates still hamper used-car affordability
One of the factors that affect used car prices is the Federal Reserve’s aggressive rate of interest hikes in response to inflation rising.
According to Edmunds the typical rate of interest for a used car loan was up from 8.76 percent in July, to 10.25% in December. As loan rates become more expensive, consumers who finance vehicle purchases will find they’re paying more for the , despite the lower price of the sticker.
What does this mean for car buyers
Consumers who plan to purchase a second-hand car in the coming year may be pleased to see lower costs for windshields but will still find they have to navigate a distended car market. Buyers of used cars should be aware of certain trends when they shop for a second-hand car this year.
Cheaper prices compared to 2022
If the demand for used cars is decreasing, prices are expected to be expected to continue to fall. According to J.P. Morgan Research, prices for used vehicles could decrease by 10% to 20% in 2023. In the event that you believe that the Fed continues to raise interest rates, vehicle prices will likely continue to fall in a downward trend.
However, not all cars will be priced at the same pace. Compact cars and pickups have had the smallest changes in cost from January 2022 as per Cox Automotive, an auto data firm — while luxury cars and SUVs have had the most drastic price reductions.
Continuation of higher-than-normal ownership cost
With the price of used cars dropping and attract potential buyers, the rise in interest rates will mean consumers who have to finance their purchases will continue to feel the pressures of an overpriced market.
Buyers of cars who take advantage of falling prices and make finance purchases in the midst of higher interest rates might pay more for cars during the term of a loan. Along with a larger monthly payment, they could have negative equity at the end of the tunnel, finding themselves .
Values for trade-ins fluctuate
As per J.D. Power which is a data and research firm the trade-in of vehicles in December received an average of $786 less in trade-in value than those which were sold in June. Because dealerships anticipate earning less on used-car sales the value of trade-ins will continue to decrease compared to the previous year.
People who plan to trade in their current vehicles should expect lower values than what was offered in the past year.
“It’s expected to represent a significant reduction of what you’ll receive from the trade-in price compared to 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.
Affluent, but relatively low inventory levels
As automakers work towards production levels that are pre-pandemic and used cars are getting more affordable, the consumer need for cars is expected to be strong following the vehicle shortage of times past, as per J.D. Power. This will reduce the stock of used vehicles because more people are choosing to purchase cars after waiting out used-car prices which reached their highest in September.
“Even if prices do come lower,” says Yoon, “for the foreseeable future we’ll be millions of vehicles short on used cars.”
However, it will let certain consumers to have a better chance in negotiations over trade-in deals.
“They have a better chance of getting a deal right now since dealers need to take these vehicles off their lot,” says Gandy. “The ball is kind of at your disposal if you do decide to trade-in your vehicle since dealers want 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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