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Used Car Prices are dropping What Does This Mean 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 petroleum and gas industries, which led to her being featured in national publications as well as international magazines. Whitney began writing out of a sense of fun and believes that stories that celebrate or assist the LGBTQ+ community the most satisfying to create. If she’s not working, she enjoys reading and walking with her Irish Wolfhound. Her home is in Houston.
February 1 2023
The article is edited 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 more than 10 years. Prior to joining NerdWallet, Julie oversaw editorial teams at NextAdvisor, Red Ventures and Quote.com. Personal finance insights from Julie have been highlighted on Forbes, The Boston Globe and CNBC throughout the years. Julie’s articles have been published by USA Today, Business Insider and Wired Insights, among others. Email: .
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Following more than one decade of overheated prices, the used-car market cooled by several degrees 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 buying power they had in 2019.
Although experts predict that the used car market in this year’s forecast will continue to improve Consumers must have realistic expectations of what buying a car will look like in 2023.
December saw a record-breaking drop in used-car prices
According to a report published in January 2023 by CoPilot which is a personal app for car buying, used-car prices fell to a record low in the month of December. It was the sixth time in a row month, falling 8.8% since January 2022. For a better understanding this drop was the biggest annual drop the used-car segment has seen since the last month in 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 price still rang in at 30.1 percent more than the market average.
The market is seeing «more of a gradual return to normalcy than what one would normally consider declining,» says Joseph Yoon an analyst for consumer insights at Edmunds, an online car guide. «The prices are still very, very, very much overvalued.»
Interest rates still hamper used-car access to affordable financing
One influence on used-car prices has been the Federal Reserve’s abrasive interest rate hikes in response to the rising rate of inflation.
According to Edmunds, the average cost of a used-car loan grew from 8.76 percent in July to 10.25% in December. As loan rates become more expensive, consumers who finance vehicle purchases will pay more for the car, even with lower prices on the sticker.
What does this mean for car buyers
Consumers who plan to purchase a used car this year may be pleased to find lower prices on windshields but will still find they need to navigate an overcrowded car market. Buyers of used cars should be aware of various trends when looking for a second-hand car this year.
Prices are lower compared to 2022.
As the demand for cars used decreases, prices will be expected to continue to fall. As per J.P. Morgan Research, prices for used cars could drop as high as 10% to 20% in 2023. In the event that you believe that the Fed continues to raise rates of interest, prices for vehicles will likely keep their downward trend.
However, not all cars will be priced at the same time. Smaller cars and pick-ups have seen the least changes in prices in the last year, in the opinion of Cox Automotive, an auto data company — while high-end vehicles and SUVs have seen the most drastic price reductions.
In the event of a continuation of an ownership cost higher than normal
When used car prices fall and attract potential buyers, the rise in interest rates will mean consumers who need to finance their purchases will likely continue to feel the pressures of the inflated market.
Car buyers who profit of falling prices and financing purchases despite rising interest rates may end up paying more for their car during the term of a loan. Along with a larger monthly installment, they may be faced with negative equity in the future and end up .
Variable trade-in value fluctuations
Based on J.D. Power the data and research firm the trade-in of vehicles in December received an average of $786 less in value for trade-ins than the vehicles that were traded in June. Because dealerships anticipate earning less on used-car sales, trade-in values will continue to decrease when compared to last year’s.
People who plan to trade in their current models should anticipate lower prices than those available in the previous year.
«It’s going to be a significant drop of what you’ll get from the trade-in price compared to the price if you were searching for an automobile at the end of September» says Terrance Gandy as the manager of used car sales in Route 44 Toyota in Raynham, Massachusetts.
Affluent, but relatively low inventory levels
Automakers are working 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 years past, according to J.D. Power. This may reduce the inventory of used cars because more people are choosing to purchase cars after waiting to see the prices of used cars 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 cars short of used cars.»
However, it will let certain consumers have a better chance when it comes to bargaining offers for trade-ins.
«They have a greater chance of negotiating right now since dealers need to remove these new vehicles off their lot,» says Gandy. «The ball is kind of in your court if you do have a trade-in since dealers are in need of your vehicle.»
About the writer: Whitney Vandiver is a writer for NerdWallet which is currently focusing on the maintenance of vehicles and car ownership. She’s previously written about small-scale businesses and payments.
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