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Used Car Prices are Dropping What Does That Mean for Car Buyers
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Used Car Prices are dropping What Does This Mean for Car Buyers
Used car prices saw a massive fall in December, however purchasing a vehicle now could still be expensive for certain buyers.
By Whitney Vandiver Writer | Car ownership, car maintenance Whitney Vandiver writes for NerdWallet about how car owners can reduce the cost of ownership and maintenance. She has previously written for 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 enjoyment and believes that stories that celebrate or help people in the LGBTQ+ community the most satisfying to create. When she’s not writing, she enjoys walking, reading, and walking her Irish wolfhound. Her home is in Houston.
February 1, 2023
The article is edited by Julie Myhre-Nunes. Assistant Assigning Editor Auto loans and consumer credit Julie Myhre-Nunes works as an assistant assigning editor at NerdWallet. She has been working in the personal finance space for over ten years. Before joining NerdWallet, Julie oversaw editorial teams at NextAdvisor, Red Ventures and Quote.com. Personal finance insights from Julie have been featured by Forbes, The Boston Globe and CNBC over the years. Julie’s articles have been published in 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 degree in the month of December.
The current trend is bringing some relief for car buyers. But inventories have yet to be at levels that are comparable to pre-pandemic, and consumers are still unable to enjoy the purchasing power they had in 2019.
While experts say the used car market in this year’s forecast will improve the consumers must be realistic about what buying a car will look like in 2023.
December saw a record-breaking decline in used car prices
According to a report published in January 2023 by CoPilot which is a personal app to help you buy a car, used-car prices decreased to a record low in the month of December. It was the sixth straight month, dropping 8.8 percent since January 2022. For a better understanding this drop was the biggest annual drop the used car market has experienced since the end in the Great Recession in June 2009.
But they’ve got a way to go before buyers are in familiar territory — the median used-car price was 30.1 percent more than a normal market price.
Markets are witnessing «more of a gradual return to normalcy than what you would call traditionally declining,» says Joseph Yoon, consumer insights analyst 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 factor that has influenced the prices of used cars has been the Federal Reserve’s aggressive rate of interest hikes in response to rising inflation.
According to Edmunds the average rate of interest for a used car loan was up from 8.76% in July to 10.25 percent in December. As loan rates become more expensive people who finance vehicle purchases will pay more , despite the lower prices on the sticker.
What does this mean for car buyers
People who are planning to purchase an used vehicle this year might be relieved to see lower costs for windshields however they will must navigate a crowded car market. Buyers of used cars should be aware of various trends when looking for a second-hand vehicle this year.
Cheaper prices compared to 2022
If the demand for used cars decreases, prices will remain in decline. According to J.P. Morgan Research, the cost of used cars could decrease by 10% to 20% in 2023. In the event that the Fed continues to raise rates of interest, prices for vehicles are likely to continue their downward trend.
But not all car models will be priced at the same pace. Smaller cars and pick-ups have had the smallest changes in prices in the last year, in the opinion of Cox Automotive, an auto data company — while the luxury cars and SUVs have had the largest price drops.
In the event of a continuation of an ownership cost higher than normal
When used car prices fall, tempting potential buyers, the surge in interest rates means that consumers who have to finance their purchases will continue to feel the pressures of an overpriced market.
Car buyers who profit of lower prices and finance purchases amid increased interest rates could pay more for their car for the duration of the loan. In addition to a greater monthly installment, they may face negative equity later when they find themselves .
Fluctuating trade-in values
As per J.D. Power the research and data firm the trade-in of vehicles in December were able to receive an average of $786 less in value when they were that were traded in June. Since dealerships are expected to earn less from used car sales and trade-in value will continue to decrease in comparison to the prior year.
Car owners looking to sell their current models should anticipate lower prices than those last year.
«It’s going to be a substantial drop of what you’ll get from the trade-in price compared to when you were in search of an auto in September,» claims Terrance Gandy who is the sales manager for used cars at 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 becoming more affordable, consumers’ need for cars is expected to be strong following the shortage of vehicles in previous years, according to J.D. Power. This may reduce the stock of used vehicles since more buyers are likely to purchase vehicles after waiting to see the prices of used cars which reached their highest in September.
«Even the prices do go lower,» says Yoon, «for the next few years we’ll still be a million of units short on used cars.»
This will allow certain consumers gain a leg up in negotiations over trade-in deals.
«They have a greater likelihood of negotiating now since dealers need to get these [new] cars off their lots,» says Gandy. «The ball is 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 at NerdWallet currently focusing on car ownership and maintenance. She’s previously written about small business and payments.
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