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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 saw a massive fall in December, however buying a car now can still be expensive for certain buyers.
Written 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 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 showcase or aid people in the LGBTQ+ community the most satisfying to write. When she’s not writing, she enjoys reading and walking with her Irish Wolfhound. Her home is in Houston.
Feb 1 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 been working in the personal finance space for more than 10 years. Before being hired by NerdWallet, Julie oversaw editorial teams at NextAdvisor, Red Ventures and Quote.com. Her personal finance insight has been highlighted 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 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 reach pre-pandemic levels, and consumers are still unable to enjoy the purchasing power they had in the year 2019.
Although experts predict that this year’s used-car market is expected to continue to grow the consumers must have realistic expectations about what buying a car will look like in 2023.
December saw a record-breaking decrease in the cost of used cars
According to a report from January 2023 by CoPilot which is a personal app for car buying, used-car prices fell during December, for the 6th time in a row month, with a drop of 8.8 percent from January 2022. For a better understanding this was the highest annual decline the used car market has experienced since the end of the Great Recession in June 2009.
But they’ve got a way to go before buyers are within the same territory as they are today — the average used-car price still rang in at 30.1 percent higher than a normal market price.
The market is 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 prices are very high, extremely, and very elevated.”
However, interest rates continue to limit used-car affordability
One factor that has influenced the prices of used cars has been the Federal Reserve’s abrasive increase in interest rates due to inflation rising.
According to Edmunds, the average 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 rise those who finance car purchases will find they’re paying higher fees vehicle, despite lower price of the sticker.
What this means for car buyers
People who are planning to purchase a used car this year might be relieved to see lower costs for windshields however they will must navigate a crowded car market. Prospective buyers need to anticipate certain trends when they shop for a used car this year.
Lower prices than 2022
As the demand for cars used wanes, prices should continue to drop. According to J.P. Morgan Research, prices for used cars could decrease by 10% to 20% in 2023. Should the Fed continues to raise interest rates, vehicle prices will likely continue to fall in a downward trend.
But not all car models are expected to drop in price at the same time. Pickups and compact cars have seen the least changes in cost in the last year, according to Cox Automotive, an auto data firm — while luxury vehicles and SUVs have experienced the largest price drops.
In the event of a continuation of an ownership cost higher than normal
As used-car prices drop and attract potential buyers, the rise in interest rates will mean that those who require financing for their purchases will continue to feel the strain from the market that is soaring.
Car buyers who profit of falling prices and make finance purchases in the midst of increased interest rates could pay more for cars during the term of a loan. In addition to a higher monthly cost, they could have negative equity at the end of the tunnel, finding themselves .
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 of $786 less in trade-in value than those traded last June. Since dealerships are expected to earn less on used-car sales the value of trade-ins are expected to continue to decline compared to the previous year.
People who plan to trade in their current cars should be prepared for lower values than what was available in the previous year.
“It’s expected to represent a substantial drop of what you’ll receive from the trade-in value versus if you were looking for a car during September.” states Terrance Gandy as the manager of used car sales at 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 vehicles are becoming more affordable, consumers’ demand is still expected to be strong following the shortage of vehicles in times past, as per J.D. Power. This will reduce the stock of used vehicles as more car buyers decide to purchase vehicles after waiting to see the prices of used cars, which peaked in September.
“Even even if prices come down,” says Yoon, “for the next few years we’ll be a million of vehicles short on used car inventory.”
However, it will let certain consumers have a better chance in negotiations over trade-in deals.
“They have a better likelihood of negotiating now, because dealers must remove these new cars off their lots,” says Gandy. “The ball is in your hands if do have a trade-in because these dealers need your vehicle.”
About the writer: Whitney Vandiver is a writer at NerdWallet currently focusing on the maintenance of vehicles and car ownership. She has previously written about small business and payments.
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