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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 still be prohibitive for some buyers.
Written by Whitney Vandiver Writer | Car ownership, car maintenance Whitney Vandiver writes for NerdWallet on ways that car owners can save money on ownership as well as maintenance. She has previously written for the petroleum and gas industries, where she was recognized in national newspapers as well as international magazines. Whitney started writing because of love and finds stories that showcase or help people in the LGBTQ+ community the most satisfying to write. When she’s not writing, she’s reading and walking with her Irish wolfhound. She is based in Houston.
January 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 been working in the area of personal finance for more than 10 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 highlighted in Forbes, The Boston Globe and CNBC throughout 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 year of prices that were too high, the used-car market cooled by a few temperatures in December.
The current trend is bringing some relief to car buyers. However, inventories have not yet be at levels that are comparable to pre-pandemic, and consumers still miss the purchasing power they had in 2019.
Experts say that the used car market in this year’s forecast will continue to improve the consumers must have realistic expectations of what car buying will look like in 2023.
December saw a record decline in used car prices
According to a report published in January 2023 by CoPilot an app that is personalized for car buying, used-car prices dropped in December for the sixth time in a row month, falling 8.8 percent since January 2022. To give some perspective, this plunge was the largest annual drop the used car market has experienced since the final month during the Great Recession in June 2009.
But they’ve have a ways to go before they’re within the same territory as they are today — the average used-car price still rang in at 30.1% higher than a normal market price.
It’s a market that’s seeing “more of a slow return to normalcy than is typically an economic decline,” says Joseph Yoon, consumer insights analyst at Edmunds, an online guide to cars. “The rates are still extremely high, extremely, and very elevated.”
However, interest rates continue to limit used-car accessibility
One factor that has influenced the prices of used cars is the Federal Reserve’s abrasive interest rate hikes in response to inflation rising.
According to Edmunds the typical rate of interest for a used car loan grew from 8.76% in July to 10.25 percent in December. As loan rates become more expensive those who finance car purchases will pay more for the car, even with lower price of the sticker.
What this means for car buyers
Consumers who plan to purchase a used car this year could be happy to see lower costs for windshields but they’ll still must navigate a crowded car market. Prospective buyers need to anticipate various trends when looking for a second-hand car this year.
Lower prices than 2022
As demand for used cars is decreasing, prices are expected to remain in decline. According to J.P. Morgan Research, prices for used vehicles could fall as much as 10 20 to 20% by 2023. Should you believe that the Fed continues to increase rates of interest, prices for vehicles are likely to continue their downward trend.
But not all car models will be priced at the same rate. 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 firm — while high-end cars and SUVs have seen the most drastic price reductions.
The continuation of a cost that is higher than normal
When used car prices fall and attract potential buyers, the increase in interest rates will mean consumers who require financing for their purchases will likely continue to feel the strain of the inflated market.
Car buyers who profit of the falling prices and make finance purchases in the midst of higher interest rates might pay more for a car for the duration of the loan. Along with a larger monthly installment, they may be faced with negative equity in the future when they find themselves .
Values for trade-ins fluctuate
Based on J.D. Power, a firm that conducts research and data the trade-in of vehicles in December received an average of $786 less in trade-in value than those traded last June. As dealerships expect to earn less on used-car sales, trade-in values are expected to continue to decline in comparison to the prior year.
People who plan to sell their current models should anticipate lower prices than the ones available in the previous year.
“It’s going to be a significant drop of what you’ll get from the trade-in value versus the price if you were searching for an automobile in September,” says Terrance Gandy who is the sales manager for used cars in Route 44 Toyota in Raynham, Massachusetts.
Inventory levels have increased, but remain relatively low. levels
As automakers work towards pre-pandemic production levels and used cars are becoming more affordable, consumer need for cars is expected to be strong following the shortage of vehicles in previous years, according to J.D. Power. This could reduce the available vehicles for sale as more car buyers decide to purchase vehicles after waiting to see the prices of used cars, which peaked in September.
“Even the prices do go lower,” says Yoon, “for the next few years we’ll be millions of vehicles short on used cars.”
However, it will let certain consumers gain a leg up when bargaining trade-in offers.
“They have a greater likelihood of negotiating now, because dealers must remove these new vehicles off their lot,” says Gandy. “The ball is kind of in your court if you do have a trade-in because right now dealers are in need of your car.”
About the writer: Whitney Vandiver is a writer for NerdWallet currently focusing on the maintenance of vehicles and car ownership. She’s written previously about small-scale businesses and payments.
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