The used-car market has cooled after more than a decade of high prices.
This trend provides some relief for car buyers. However, inventories are still far below pre-pandemic levels and consumers still lack the purchasing power they had in 2019.
Experts say the used-car market will improve in 2019, but consumers must have realistic expectations about what car buying will look and feel like in 2023.
December saw a record-breaking drop in used car prices
A January 2023 report from CoPilot (a personal app for car-buying), shows that used-car prices dropped in December for the sixth straight month. They fell 8.8% since January 2022, according to the report. This plunge represents the biggest annual drop in used-car prices since June 2009, when the Great Recession ended.
However, they still have a long way to go before buyers feel comfortable with their vehicle. The average used car price was still 30.1% more than the normal market price.
Joseph Yoon, Edmunds’ consumer insights analyst, says that the market is seeing “more of a slow recovery to normalcy than you would normally call a decline.” “The prices remain very, very high span>
High interest rates continue to limit used-car affordability
The Federal Reserve’s aggressive interest-rate hikes as a response to rising inflation have had a significant impact on used car prices.
Edmunds reports that the average interest rate on a used car loan rose from 8.76% to 10.25% between July and December. Consumers who finance vehicle purchases will notice that their total car cost is increasing at higher loan rates.
What does this mean for car buyers
While consumers who plan to purchase a used car in the coming year may be relieved by lower windshield prices, they will still need to navigate a crowded car market. When shopping for a used vehicle, potential buyers need to anticipate several trends.
Lower prices than 2022
Prices should fall as the demand for used cars decreases. J.P. Morgan Research predicts that used car prices could drop as high as 10% to 20% by 2023. Vehicle prices will continue to fall if the Fed keeps raising interest rates.
However, not all models of car will see a price drop at the same time. According to Cox Automotive, an automotive data company, compact cars and pickups have seen the most price changes since January 2022. Luxury cars and SUVs, however, have experienced the greatest price drops.
Continuation at a higher than-normal ownership cost
While used car prices are dropping, tempting buyers, the rise in interest rates will continue to put pressure on consumers who have to finance their purchases.
Buyers who profit from falling prices and finance purchases while paying higher interest rates may pay more to purchase a car over the loan term. They could also face negative equity later and end up paying more monthly.
Fluctuating Trade-In Values
J.D. Power reports that trade-in vehicles in December received an average of $786 less in trade-in value than those traded last June. J.D. Power, a data- and research company, found that trade-in cars in December were valued at $786 less than the vehicles traded in June. Trade-in values are expected to continue falling as dealerships expect to make less from used-car sales.
Owners of cars who are looking to trade their current models in should expect lower values than the last year.
Terrance Gandy is the Route 44 Toyota used-car sales manager in Raynham Massachusetts. He says that there will be a significant decrease in the value of the trade-in value than if you were looking to buy a car in September.
Higher but still relatively low inventories
J.D. Power. This could decrease the inventory of used cars, as more buyers will decide to buy vehicles after waiting for used-car prices to rise.
Yoon says that even if prices drop, there will be millions of used cars in short supply.
This will allow some consumers to negotiate trade-ins more easily.
Gandy says that dealers are more likely to negotiate right now, as they have to sell these cars. If you have a trade in, the ball is in your favor because these dealers are looking for your car .”