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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 That Means for Car Buyers
Used-car prices took a big fall in December, however purchasing a vehicle now could still be prohibitive for some buyers.
Written 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 previously wrote in the oil and gas industry, which led to her being published in national journals as well as international magazines. Whitney started writing because of enjoyment and finds stories that highlight or help those in the LGBTQ+ community the most satisfying to create. If she’s not working, she’s walking and reading with her Irish Wolfhound. She’s based in Houston.
January 1st Feb 2023
Edited by Julie Myhre-Nunes Auto loans Consumer credit, auto loans Julie Myhre-Nunes works as an assistant assigning editor at NerdWallet. She has been working in the field 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. Her personal finance insight has been highlighted by Forbes, The Boston Globe and CNBC through the years. Julie’s articles have been published through USA Today, Business Insider and Wired Insights, among others. Email: .
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Following more than one year of overheated prices, the used-car market cooled by several degrees in December.
The trend brings some relief for car buyers. But inventories have yet to get to levels pre-pandemic and consumers haven’t yet regained the purchasing power they enjoyed in 2019.
Although experts predict that the used car market in this year’s forecast is expected to continue to grow the consumers must have realistic expectations about what car buying will look like in 2023.
December saw a record decline in used car prices
According to a report from January 2023 from CoPilot, a personalized app for car buying, used-car prices fell during December, for the 6th consecutive month, dropping 8.8 percent from January 2022. To put it in perspective this drop was the highest annual decline the used car market has experienced since the end of the Great Recession in June 2009.
But they’ve still have a ways to go before they’re in familiar territory — the median used-car price was 30.1 percent more than the market average.
Markets are witnessing “more of a slow return to normalcy than what is typically a decline,” says Joseph Yoon the consumer insights analyst at Edmunds an online car guide. “The rates are still extremely high, extremely, and very elevated.”
The current interest rates are a barrier to used car access to affordable financing
One factor that has influenced the prices of used cars has been the Federal Reserve’s aggressive interest rate hikes in response to rising inflation.
According to Edmunds, the average interest rate for a used-car loan grew from 8.76 percent in July, to 10.25 percent in December. As loan rates rise, consumers who finance vehicle purchases will find they’re paying more for the , despite the lower price of the sticker.
What this means for car buyers
Consumers planning to buy a used car this year might be relieved to see lower windshield prices but will still find they have to navigate a distended car market. Potential car buyers should anticipate various trends when looking for a used car this year.
Lower prices than 2022
If the demand for used cars wanes, prices should continue to drop. Based on J.P. Morgan Research, prices for used vehicles could fall as much as 10% to 20% in 2023. If it is the case that the Fed continues to increase interest rates, vehicle prices are likely to continue their downward trend.
But not all car models will be priced at the same rate. Pickups and compact cars have had the smallest changes in cost in the last year, as per Cox Automotive, an auto data company — while luxury vehicles and SUVs have seen the most drastic price reductions.
Continuation of higher-than-normal ownership cost
As used-car prices drop making it more attractive to potential buyers the surge in interest rates means that consumers who require financing for their purchases will likely continue to feel the pressure of an overpriced market.
Car buyers who take advantage of falling prices and finance purchases amid higher interest rates might pay more for their car over the life of a loan. Along with a larger monthly installment, they may have negative equity at the end of the tunnel and end up .
Values for trade-ins fluctuate
According to J.D. Power the firm that conducts research and data the trade-in of vehicles in December were able to receive an average value of just $786 in value for trade-ins than the vehicles which were sold in June. Because dealerships anticipate earning less from sales of used cars and trade-in value are expected to continue to decline compared to the previous year.
Car owners looking to trade in their current vehicles should expect lower prices than the ones available in the previous year.
“It’s expected to represent a significant reduction of what you’re gonna get from the value of your trade-in if you were looking for an automobile at the end of September” claims Terrance Gandy as the manager of used car sales at Route 44 Toyota in Raynham, Massachusetts.
Increased but relatively low inventory levels
Automakers are working towards production levels that are pre-pandemic and used cars are getting more affordable, the consumer demand is still expected to be strong following the car shortage in the times past, as per J.D. Power. This may reduce the inventory of used cars as more car buyers decide to purchase vehicles after waiting for used car prices to drop that reached their peak in September.
“Even if prices do come down,” says Yoon, “for the foreseeable future we’ll be millions of cars short of used cars.”
But that will help certain consumers have a better chance when it comes to bargaining offers for trade-ins.
“They have a better likelihood of negotiating now because dealers have to take these vehicles off their lot,” says Gandy. “The ball is kind of at your disposal if you are able to trade in your car because these dealers need your vehicle.”
About the author: Whitney Vandiver is a writer for NerdWallet which is currently focusing on car ownership and maintenance. She’s written previously about small-scale businesses and payments.
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