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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

The prices of used cars saw a huge drop in December, but buying a car now can still be expensive for some buyers.

by Whitney Vandiver Writer | Car ownership, car maintenance Whitney Vandiver writes for NerdWallet about ways car owners can save money on ownership as well as maintenance. She previously wrote in the petroleum and gas industries, where she was featured in national publications as well as international magazines. Whitney became a writer out of love and finds stories that highlight or help the LGBTQ+ community the most rewarding to craft. If she’s not working, she loves walking and reading with her Irish wolfhound. Her home is in Houston.

January 1st, 2023

Written by Julie Myhre-Nunes, 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 over 10 years. Prior to becoming a part of NerdWallet, Julie oversaw editorial teams at NextAdvisor, Red Ventures and Personal finance insights from Julie have been featured on Forbes, The Boston Globe and CNBC throughout the years. Julie’s writings have been featured through USA Today, Business Insider and Wired Insights, among others. Email: .

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In the aftermath of more than a year of soaring prices, the used-car market cooled by a few degrees in December.

The trend brings some relief for car buyers. But inventories have yet to be at levels that are comparable to pre-pandemic, and consumers haven’t yet regained the buying power they had in 2019.

Experts say that the used car market for this year will improve the consumers must have realistic expectations of the way that car purchases will play like in 2023.

December saw a record-breaking drop in used-car prices

According to a January 2023 report by CoPilot which is a personal app for buying a used car, used car prices fell in December for the sixth time in a row month, dropping 8.8% since January 2022. To give some perspective this was the highest annual decline that the used car segment has seen since the last month in the Great Recession in June 2009.

However, they’ve got a way to go before buyers are in familiar territory — the median used-car price still rang in at 30.1 percent higher than a market-rate average.

The market is seeing “more of a slow return to normalcy than what one would normally consider a decline,” says Joseph Yoon, consumer insights analyst at Edmunds an online guide to cars. “The prices are very highly, extremely overvalued.”

Interest rates still hamper used-car access to affordable financing

One factor that has influenced the prices of used cars is the Federal Reserve’s abrasive rate of interest hikes in response to rising inflation.

According to Edmunds the typical cost of a used-car loan grew from 8.76 percent in July to 10.25 percent in December. As loan rates become more expensive those who finance car purchases will be paying higher fees car, even with lower sticker prices.

What does this mean for car buyers

Consumers planning to buy an used vehicle this year could be happy to see lower costs for windshields however they will have to navigate a distended car market. Prospective buyers need to anticipate certain trends when they shop for a second-hand car this year.

Prices are lower compared to 2022.

As demand for used cars wanes, prices should be expected to continue to fall. Based on J.P. Morgan Research, prices for used cars could fall as much as 10 20 to 20% by 2023. In the event that the Fed continues to raise rates of interest, prices for vehicles will likely continue to fall in a downward trend.

However, not all models are expected to drop in price at the same pace. Compact cars and pickups have seen the smallest change in prices from January 2022 as per Cox Automotive, an auto data company — while the luxury cars and SUVs have seen the biggest price decreases.

Continuation of higher-than-normal ownership cost

With the price of used cars dropping, tempting potential buyers, the surge in interest rates will mean consumers who need to finance their purchases are likely to feel the pressures of an overpriced market.

Car buyers who take advantage of the falling prices and make finance purchases in the midst of higher interest rates might pay more for a car over the life of a loan. In addition to a higher monthly cost, they could be faced with negative equity in the future, finding themselves .

Fluctuating trade-in values

As per J.D. Power which is a research and data firm that tracked trade-ins in December, vehicles received the equivalent of $786 more trade-in value than those which were sold in June. Because dealerships anticipate earning less on used-car sales and trade-in value will continue to decrease compared to the previous year.

People who plan to trade in their current cars should be prepared for lower prices than the ones offered in the past year.

“It’s likely to result in a significant reduction of what you’ll receive from the value of your trade-in when you were in search of a car during September.” claims Terrance Gandy, the used-car sales manager at Route 44 Toyota in Raynham, Massachusetts.

Increased but relatively low inventory levels

As automakers work towards pre-pandemic production levels and used vehicles are becoming more affordable, consumers’ need for cars is expected to be high due to the car shortage in the previous years, according to J.D. Power. This will reduce the vehicles for sale since more buyers are likely to purchase cars after waiting for used car prices to drop that reached their peak in September.

“Even if prices do come downwards,” says Yoon, “for the next few years we’ll still be a million of cars short of used cars.”

However, it will let some consumers have a better chance when bargaining trade-in offers.

“They have a greater chance of negotiating right now because dealers have to remove these new vehicles off their lot,” says Gandy. “The ball is in your court if you do decide to trade-in your vehicle because these dealers need your car.”

About the writer: Whitney Vandiver is a writer at NerdWallet which is currently focused on maintenance and ownership of cars. She’s previously written about small business and payments.

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