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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
Used-car prices took a big fall in December, however buying a car today could still be expensive for some buyers.
by Whitney Vandiver Writer | Car ownership, maintenance of cars Whitney Vandiver writes for NerdWallet about ways car owners can save money on ownership and maintenance. She has previously written for the oil and gas industry, where she was featured in national publications and international magazines. Whitney started writing because of a sense of fun and believes that stories that celebrate or help the LGBTQ+ community the most satisfying to write. When she’s not writing, she’s walking, reading, and walking her Irish wolfhound. She is based in Houston.
January 1 2023
The article is edited by Julie Myhre-Nunes. Auto loans, consumer credit Julie Myhre-Nunes is an assistant editor assigned to NerdWallet. She has been working in the field of personal finance for over ten years. Before joining 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 over 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 decade of soaring prices the used car market was cooled by a few degree in the month of December.
The current trend is bringing some relief for car buyers. However, inventories aren’t yet be at levels that are comparable to pre-pandemic, and consumers haven’t yet regained the purchasing power they had in the year 2019.
Experts say that this year’s used-car market is expected to continue to grow Consumers must be realistic about what car buying will look like in 2023.
December saw the biggest decline in used car prices
According to a report from January 2023 from CoPilot, a personalized app for car buying, used-car prices dropped in December for the sixth consecutive month, with a drop of 8.8 percent since January 2022. To give some perspective, this plunge was the highest annual decline the used car market has experienced since the final month of the Great Recession in June 2009.
But they’ve still got a way to go before buyers are in a familiar space — the average used-car price was 30.1 percent higher than a normal market price.
The market is witnessing «more of a gradual returning to normal than you would call traditionally an economic decline,» says Joseph Yoon, consumer insights analyst at Edmunds an online guide to cars. «The prices are very, very, very much overvalued.»
However, interest rates continue to limit used-car access to affordable financing
One of the factors that affect used car prices has been the Federal Reserve’s abrasive increase in interest rates due to rising inflation.
According to Edmunds the typical rate of interest for a used car loan was up from 8.76 percent in July to 10.25 percent in December. As loan rates increase those who finance car 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 an used vehicle this year may be pleased to see lower windshield prices but they’ll still need to navigate an overcrowded car market. Buyers of used cars should be aware of several trends when shopping for a used vehicle this year.
Prices are lower compared to 2022.
As the demand for cars used wanes, prices should be expected to continue to fall. As per J.P. Morgan Research, prices for used vehicles could fall as much as 10 20 to 20% by 2023. If the Fed continues to increase rates of interest, the cost of vehicles will likely keep their downward trend.
However, not all models will drop in price at the same time. Smaller cars and pick-ups have seen the least changes in prices from January 2022 in the opinion of Cox Automotive, an auto company that collects data — while high-end vehicles and SUVs have had the largest price drops.
The continuation of a cost that is higher than normal
As used-car prices drop making it more attractive to potential buyers the rise in interest rates will mean that those who have to finance their purchases will likely continue to feel the pressures of an overpriced market.
Buyers of cars who take advantage of lower prices and finance purchases amid higher interest rates might pay more for a car during the term of a loan. In addition to a greater monthly cost, they could have negative equity at the end of the tunnel when they find themselves .
Fluctuating trade-in values
As per J.D. Power, a research and data firm, trade-in vehicles in December were able to receive an average of $786 less trade-in value than those 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 sell their current models should anticipate lower prices than the ones available in the previous year.
«It’s going to be a substantial drop of what you’ll receive from the value of your trade-in when you were in search of a car during September.» claims Terrance Gandy who is the sales manager for used cars in Route 44 Toyota in Raynham, Massachusetts.
Affluent, but relatively low inventory levels
Automakers are working towards pre-pandemic production levels and used vehicles are getting more affordable, the consumer demand will continue to be high following the shortage of vehicles in previous years, according to J.D. Power. This may reduce the vehicles for sale as more car buyers decide to purchase vehicles after waiting for used car prices to drop which reached their highest in September.
«Even if prices do come downwards,» says Yoon, «for the next few years we’ll still be a million of cars short of used car inventory.»
But that will help certain consumers be in a stronger position when it comes to bargaining offers for trade-ins.
«They have a greater chance of negotiating right now since dealers need to get these [new] automobiles off their showrooms,» says Gandy. «The ball is kind of in your hands if do have a trade-in because these dealers need your car.»
About the writer: Whitney Vandiver is a writer at NerdWallet which is currently focused on car ownership and maintenance. She’s written previously about small-scale businesses and payments.
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