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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 This Mean for Car Buyers

The prices of used cars saw a huge decline in December, but purchasing a vehicle now could remain prohibitive for some buyers.

By Whitney Vandiver Writer | Car ownership, car maintenance Whitney Vandiver writes for NerdWallet on ways that car owners can save money on ownership as well as maintenance. She previously wrote in the petroleum and gas industries, which led to her being recognized in national newspapers and international magazines. Whitney became a writer out of enjoyment and finds stories that showcase or help those in the LGBTQ+ community the most rewarding to craft. In her spare time, she’s reading and walking with her Irish wolfhound. Her home is in Houston.

February 1 2023

The article is edited by Julie Myhre-Nunes. Assistant Assigning Editor Auto loans and consumer credit Julie Myhre-Nunes is an assistant editor assigned to NerdWallet. She has been working in the area of personal finance for over ten years. Prior to being hired by NerdWallet, Julie oversaw editorial teams at NextAdvisor, Red Ventures and Quote.com. Julie’s personal financial insights have been highlighted by 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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In the aftermath of more than a year of soaring prices The used-car market began to cool by a few degree in the month of December.

The new trend offers some relief for car buyers. But inventories have yet to be at levels that are comparable to pre-pandemic, and consumers still miss the purchasing power they had in 2019.

While experts say the used car market for this year will improve, consumers need to have realistic expectations 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 from CoPilot, a personalized app for buying a used car, used car prices decreased during December, for the 6th consecutive month, dropping 8.8 percent from January 2022. To give some perspective this was the biggest annual drop the used-car segment has seen since the final month of the Great Recession in June 2009.

However, they’ve left a long way to go before buyers are within the same territory as they are today — the average used-car cost was 30.1% higher than a market-rate average.

It’s a market that’s witnessing “more of a gradual recovery than what is typically an economic decline,” says Joseph Yoon the consumer insights analyst at Edmunds, an online guide to cars. “The rates are still extremely highly, extremely overvalued.”

The current interest rates are a barrier to used car accessibility

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

According to Edmunds the average cost of a used-car loan grew from 8.76% in July to 10.25% in December. As loan rates rise, consumers who finance vehicle purchases will be paying more for the car, even with lower sticker prices.

What this means for car buyers

Consumers planning to buy a used car this year may be pleased to find lower prices on windshields however they will need to navigate an overcrowded car market. Potential car buyers should anticipate several trends when shopping for a used car this year.

Prices are lower compared to 2022.

As demand for used cars decreases, prices will remain in decline. As per J.P. Morgan Research, the cost of used cars could drop as high as 10 percent to 20% by 2023. In the event that it is the case that the Fed continues to raise rates of interest, prices for vehicles are likely to continue their downward trend.

However, not all cars will drop in price at the same time. Compact cars and pickups have had the smallest changes in prices since January 2022, in the opinion of Cox Automotive, an auto data firm — while high-end vehicles and SUVs have had the largest price drops.

Continuation of higher-than-normal ownership cost

When used car prices fall making it more attractive to potential buyers the increase in interest rates will mean consumers who need to finance their purchases will continue to feel the pressures of the inflated market.

Car buyers who take advantage of falling prices and finance purchases amid higher interest rates might pay more for cars during the term of a loan. Along with a larger monthly payment, they could be faced with negative equity in the future when they find themselves .

Fluctuating trade-in values

As per J.D. Power the research and data firm the trade-in of vehicles in December were able to receive an average value of just $786 trade-in value than those that were traded in June. As dealerships expect to earn less from sales of used cars, trade-in values will continue to fall compared to the previous year.

Car owners who are looking to trade in their current cars should be prepared for lower prices than those offered in the past year.

“It’s likely to result in a substantial drop of what you’re gonna get from the value of your trade-in when you were in search of a car during September.” says Terrance Gandy who is the sales manager for used cars in Route 44 Toyota in Raynham, Massachusetts.

Increased but relatively low inventory levels

Automakers are working towards pre-pandemic production levels and used vehicles are becoming more affordable, consumer need for cars is expected to be strong following the shortage of vehicles in times past, as per J.D. Power. This could reduce the available stock of used vehicles since more buyers are likely to buy cars after waiting out used-car prices which reached their highest in September.

“Even if prices do come downwards,” says Yoon, “for the next few years, we’re going to be a million of units short on used car inventory.”

However, it will let certain consumers gain a leg up when bargaining trade-in offers.

“They have a better likelihood of negotiating now since dealers need to remove these new cars off their lots,” says Gandy. “The ball is in your court if you do have a trade-in since dealers want your vehicle.”

About the writer: Whitney Vandiver is a writer at NerdWallet which is currently focused on the maintenance of vehicles and car ownership. She’s previously written about payments for small businesses and payment.

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