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Used Car Prices are dropping What Does This 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 still be expensive for certain buyers.

By Whitney Vandiver Writer | Car ownership, car maintenance 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 became a writer out of love and finds stories that highlight or help the LGBTQ+ community the most satisfying to write. When she’s not writing, she loves reading and walking with her Irish Wolfhound. Her home is in Houston.

Feb 1st, 2023

Written by Julie Myhre-Nunes, Assistant Assigning editor Auto loans and consumer credit Julie Myhre-Nunes works as an assistant assigning editor at NerdWallet. She has been working in the field of personal finance for over ten years. Before being hired by NerdWallet, Julie oversaw editorial teams at NextAdvisor, Red Ventures and Personal finance insights from Julie have been highlighted in Forbes, The Boston Globe and CNBC through the years. Julie’s writing has been published through USA Today, Business Insider and Wired Insights, among others. Email: .

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After more than a decade of overheated prices the used car market was cooled by a few degree in the month of December.

The current trend is bringing some relief to those who buy cars. However, inventories have not yet reach pre-pandemic levels, and consumers still miss the purchasing power they enjoyed in the year 2019.

While experts say the used car market for this year is expected to continue to grow, consumers need to have realistic expectations of the way that car purchases will play like in 2023.

December saw a record drop in used-car prices

According to a report from January 2023 from CoPilot which is a personal app to help you buy a car, used-car prices fell in December for the sixth time in a row month, dropping 8.8% since January 2022. To put it in perspective this was the largest annual drop that the used car segment has seen since the end of the Great Recession in June 2009.

But they’ve still got a way to go before they’re in familiar territory — the average used-car cost was 30.1 percent more than a normal market price.

Markets are seeing “more of a gradual return to normalcy than what one would normally consider a decline,” says Joseph Yoon an analyst for consumer insights at Edmunds an online car guide. “The prices are still very high, extremely, and very elevated.”

The current interest rates are a barrier to used car affordability

One influence on used-car prices has been the Federal Reserve’s aggressive rate of interest hikes in response to inflation rising.

According to Edmunds the average interest rate for a used-car loan was up from 8.76 percent in July, to 10.25 percent in December. As loan rates become more expensive people who finance vehicle purchases will find they’re paying more for the vehicle, despite lower sticker prices.

What does this mean for car buyers

People who are planning to purchase a used car this year could be happy to find lower prices on windshields but will still find they need to navigate an overcrowded car market. Potential car buyers should anticipate several trends when shopping for a second-hand 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 percent to 20% by 2023. In the event that you believe that the Fed continues to raise rates of interest, the cost of vehicles will likely keep their downward trend.

However, not all models are expected to drop in price at the same time. Compact cars and pickups have had the smallest changes in price from January 2022 according to Cox Automotive, an auto data firm — while the luxury cars and SUVs have had the biggest price decreases.

In the event of a continuation of an ownership cost higher than normal

With the price of used cars dropping making it more attractive to potential buyers the surge in interest rates will mean consumers who need to finance their purchases are likely to feel the pressure from the market that is soaring.

Car buyers who profit of lower prices and finance purchases amid higher interest rates might pay more for cars over the life of a loan. In addition to a higher monthly installment, they may have negative equity at the end of the tunnel, finding themselves .

Values for trade-ins fluctuate

As per J.D. Power which is a data and research firm that tracked trade-ins in December, vehicles received the equivalent of $786 more trade-in value than those traded last June. As dealerships expect to earn less from used car sales and trade-in value are expected to continue to decline when compared to last year’s.

People who plan to trade in their current models should anticipate lower values than what was offered in the past year.

“It’s going to be a substantial drop of what you’ll receive from the value of your trade-in if you were looking for a car during September.” claims Terrance Gandy who is the sales manager for used cars at Route 44 Toyota in Raynham, Massachusetts.

Inventory levels have increased, but remain relatively low. levels

While automakers are working toward production levels that are pre-pandemic and used cars are becoming more affordable, consumers’ demand will continue to be high due to the vehicle shortage of times past, as per J.D. Power. This will reduce the stock of used vehicles because more people are choosing to purchase cars after waiting out used-car prices which reached their highest in September.

“Even if prices do come lower,” says Yoon, “for the foreseeable future we’ll be a million of cars short of used cars.”

However, it will let some consumers be in a stronger position in negotiations over trade-in deals.

“They have a much better likelihood of negotiating now since dealers need to get these [new] cars off their lots,” says Gandy. “The ball is kind of in your hands if are able to trade in your car because dealers are in need of your car.”

About the writer: Whitney Vandiver is a writer at NerdWallet which is currently focusing on car ownership and maintenance. She’s previously written about small-scale businesses and payments.

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