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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 That Mean for Car Buyers
Used-car prices took a big drop 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 and maintenance. She previously wrote in the petroleum and gas industries, which led to her being published in national journals and international magazines. Whitney became a writer out of love and believes that stories that celebrate or aid the LGBTQ+ community the most satisfying to create. In her spare time, she loves reading and walking with her Irish wolfhound. She is based in Houston.
Feb 1st Feb 2023
Written by Julie Myhre-Nunes,, Assistant Assigning Editor Auto loans Consumer credit, auto loans Julie Myhre-Nunes works as an assistant editor assigned to NerdWallet. She has worked in the area of personal finance for more than 10 years. Before joining NerdWallet, Julie oversaw editorial teams at NextAdvisor, Red Ventures and Quote.com. Personal finance insights from Julie have been featured in Forbes, The Boston Globe and CNBC over the years. Julie’s writing has been published in USA Today, Business Insider and Wired Insights, among others. Email: .
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In the aftermath of more than a year of prices that were too high, the used-car market cooled by several degrees in December.
The new trend offers some relief for car buyers. However, inventories have not yet be at levels that are comparable to pre-pandemic, and consumers are still unable to enjoy the buying power they had in 2019.
While experts say the used car market for this year is expected to continue to grow Consumers must have realistic expectations of the way that car purchases will play like in 2023.
December saw a record-breaking decrease in the cost of used cars
According to a January 2023 report from CoPilot, a personalized app for buying a used car, used car prices decreased during December, for the 6th straight month, with a drop of 8.8 percent since January 2022. To give some perspective this drop was the largest annual drop the used car market has experienced since the last month during the Great Recession in June 2009.
But they’ve have a ways to go before buyers are in familiar territory — the average used-car price still rang in at 30.1% higher than a market-rate average.
Markets are seeing «more of a gradual return to normalcy than what you would call traditionally declining,» says Joseph Yoon the consumer insights analyst at Edmunds an online guide to cars. «The prices are very highly, extremely higher.»
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 interest rate hikes in response to inflation rising.
According to Edmunds, the average rate of interest for a used car loan increased 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 vehicle, despite lower price of the sticker.
What does this mean for car buyers
Consumers planning to buy a used car this year may be pleased to see lower costs for windshields but they’ll still have to navigate a distended car market. Prospective buyers need to anticipate several trends when shopping for a second-hand vehicle this year.
Cheaper prices compared to 2022
If the demand for used cars decreases, prices will remain in decline. As per J.P. Morgan Research, the cost of used cars could drop as high as 10% to 20% in 2023. If the Fed continues to increase rates of interest, the cost of vehicles will likely continue to fall in a downward trend.
But not all car models will drop in price at the same rate. Compact cars and pickups have had the smallest changes in prices in the last year, according to Cox Automotive, an auto data firm — while high-end cars and SUVs have experienced the largest price drops.
The continuation of a cost that is higher than normal
When used car prices fall making it more attractive to potential buyers the surge in interest rates will mean consumers who require financing for their purchases will continue to feel the pressures of an overpriced market.
Buyers of cars who take advantage of the falling prices and make finance purchases in the midst of increased interest rates could pay more for a car during the term of a loan. In addition to a higher monthly cost, they could have negative equity at the end of the tunnel and end up .
Values for trade-ins fluctuate
Based on J.D. Power, a firm that conducts research and data that tracked trade-ins in December, vehicles were able to receive an average of $786 less in trade-in value than those which were sold in June. Since dealerships are expected to earn less from used car sales the value of trade-ins will continue to fall in comparison to the prior year.
Car owners looking to sell their current models should anticipate lower values than what was last year.
«It’s going to be a substantial drop of what you’re gonna get from the trade-in value versus if you were looking for a car during September.» claims Terrance Gandy as the manager of used car sales for Route 44 Toyota in Raynham, Massachusetts.
Affluent, but relatively low inventory levels
While automakers are working toward production levels that are pre-pandemic and used cars are becoming more affordable, consumer demand is still expected to be strong following the vehicle shortage of times past, as per J.D. Power. This will reduce the stock of used vehicles since more buyers are likely to buy cars after waiting for used car prices to drop, which peaked in September.
«Even even if prices come downwards,» says Yoon, «for the next few years we’ll be millions of units short on used car inventory.»
This will allow certain consumers to gain a leg up when it comes to bargaining offers for trade-ins.
«They have a better likelihood of negotiating now because dealers have to remove these new automobiles off their showrooms,» says Gandy. «The ball is in your court if you are able to trade in your car because dealers want 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 previously written about payments for small businesses and payment.
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