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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 That Means for Car Buyers

Used-car prices took a big fall in December, however buying a car now can still be prohibitive for certain buyers.

By Whitney Vandiver Writer | Car ownership, maintenance of cars Whitney Vandiver writes for NerdWallet about how car owners can save money on ownership and maintenance. She previously wrote in the oil and gas industry where she was published in national journals and international magazines. Whitney started writing because of enjoyment and finds stories that highlight or help those in the LGBTQ+ community the most satisfying to write. If she’s not working, she loves walking, reading, and walking her Irish wolfhound. Her home is in Houston.

February 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 assigning editor at NerdWallet. She has been working in the area of personal finance for more than 10 years. Before joining NerdWallet, Julie oversaw editorial teams at NextAdvisor, Red Ventures and Quote.com. Julie’s personal financial insights have been featured in Forbes, The Boston Globe and CNBC through the years. Julie’s writings have been featured in 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 began to cool by several degree in the month of December.

The trend brings some relief for car buyers. However, inventories aren’t yet get to levels pre-pandemic and consumers are still unable to enjoy the purchasing power they enjoyed in 2019.

While experts say the used car market in this year’s forecast will improve, consumers need to be realistic about the way that car purchases will play like in 2023.

December saw the biggest decrease in the cost of used cars

According to a report from January 2023 by CoPilot, a personalized app for buying a used car, used car prices fell during December, for the 6th straight month, dropping 8.8% since January 2022. To give some perspective this was the largest annual drop the used-car segment has seen since the final month of the Great Recession in June 2009.

But they’ve still left a long way to go before they’re in familiar territory The average used car price was 30.1 percent higher than the market average.

The market is witnessing “more of a gradual recovery than is typically a decline,” says Joseph Yoon an analyst for consumer insights at Edmunds an online guide to cars. “The prices are very high, extremely, and very overvalued.”

The current interest rates are a barrier to used car affordability

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

According to Edmunds, the average cost of a used-car loan grew from 8.76 percent in July to 10.25% in December. As loan rates increase people who finance vehicle purchases will pay more vehicle, despite lower sticker prices.

What this means for car buyers

Consumers planning to buy an used vehicle 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 several trends when shopping for a used car this year.

Cheaper prices compared to 2022

As the demand for cars used wanes, prices should continue to drop. As per J.P. Morgan Research, prices for used cars could drop as high as 10 20 to 20% by 2023. Should it is the case that the Fed continues to raise rates of interest, prices for vehicles will likely keep their downward trend.

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

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

With the price of used cars dropping, tempting potential buyers, the increase in interest rates will mean consumers who require financing for their purchases will continue to feel the strain of an overpriced market.

Car buyers who take advantage of the falling prices and make finance purchases in the midst of increased interest rates could pay more for their car for the duration of the loan. In addition to a higher monthly payment, they could have negative equity at the end of the tunnel, finding themselves .

Fluctuating trade-in values

As per J.D. Power the firm that conducts research and data, trade-in vehicles in December received the equivalent of $786 more trade-in value than those which were sold in June. Since dealerships are expected to earn less on used-car sales, trade-in values will continue to fall in comparison to the prior year.

People who plan to sell their current cars should be prepared for lower prices than the ones available in the previous year.

“It’s going to be a substantial drop of what you’re gonna get from the trade-in price compared to the price if you were searching for a car during September.” states Terrance Gandy as the manager of used car sales at Route 44 Toyota in Raynham, Massachusetts.

Inventory levels have increased, but remain relatively low. levels

While automakers are working toward the production levels of pre-pandemics and used vehicles are becoming more affordable, consumer demand is still expected to be high due to the shortage of vehicles in previous years, according to J.D. Power. This could reduce the available vehicles for sale because more people are choosing to purchase cars after waiting out used-car prices which reached their highest 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 cars.”

But that will help certain consumers be in a stronger position in negotiations over trade-in deals.

“They have a much better chance of negotiating right now since dealers need to take these cars off their lots,” 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 writer: Whitney Vandiver is a writer for NerdWallet currently focusing on the maintenance of vehicles and car ownership. She has previously written about small-scale businesses and payments.

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