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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 drop in December, but buying a car now can remain prohibitive for some buyers.

By Whitney Vandiver Writer | Car ownership, maintenance of cars Whitney Vandiver writes for NerdWallet on ways that car owners can save money on ownership as well as maintenance. She has previously written for the oil and gas industry which led to her being published in national journals and international magazines. Whitney became a writer out of enjoyment and finds stories that highlight or aid people in the LGBTQ+ community the most rewarding to craft. When she’s not writing, she’s walking, reading, and walking her Irish Wolfhound. She’s based in Houston.

January 1, 2023

Edited by Julie Myhre-Nunes Assistant Assigning editor Auto loans, consumer credit Julie Myhre-Nunes works as an assistant editor assigned to NerdWallet. She has been working in the area of personal finance for over ten years. Prior to becoming a part of NerdWallet, Julie oversaw editorial teams at NextAdvisor, Red Ventures and Quote.com. Her personal finance insight has been featured by Forbes, The Boston Globe and CNBC over the years. Julie’s writings have been featured in USA Today, Business Insider and Wired Insights, among others. Email: .

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Following more than one decade of overheated prices, the used-car market cooled by a few degree in the month of December.

The trend brings some relief to those who buy cars. However, inventories aren’t yet be at levels that are comparable to pre-pandemic, and consumers haven’t yet regained the buying power they had in the year 2019.

Although experts predict that this year’s used-car market will improve the consumers must have realistic expectations of what buying a car will look like in 2023.

December saw a record-breaking decrease in the cost of used cars

According to a report from January 2023 by CoPilot an app that is personalized to help you buy a car, used-car prices fell during December, for the 6th straight month, falling 8.8 percent from January 2022. To give some perspective this was the biggest annual drop that the used car segment has seen since the end during the Great Recession in June 2009.

But they’ve still got a way to go before buyers are in a familiar space — the average used-car price still rang in at 30.1% higher than a market-rate average.

Markets are witnessing «more of a slow returning to normal than one would normally consider an economic decline,» says Joseph Yoon an analyst for consumer insights at Edmunds an online guide to cars. «The prices are still very highly, extremely overvalued.»

However, interest rates continue to limit used-car accessibility

One of the factors that affect used car prices has been the Federal Reserve’s abrasive interest rate hikes in response to rising inflation.

According to Edmunds the average interest rate for a used-car loan was up from 8.76% in July to 10.25% in December. As loan rates rise people who finance vehicle purchases will pay more for the , despite the lower sticker prices.

What does this mean for car buyers

Consumers planning to buy a second-hand car in the coming year might be relieved to see lower windshield prices however they will have to navigate a distended car market. Buyers of used cars should be aware of certain trends when they shop for a second-hand car this year.

Lower prices than 2022

As demand for used cars is decreasing, prices are expected to remain in decline. Based on J.P. Morgan Research, prices for used cars could drop as high as 10 percent to 20% by 2023. In the event that the Fed continues to increase interest rates, vehicle prices will likely continue to fall in a downward trend.

However, not all cars will drop in price at the same pace. Pickups and compact cars have had the smallest changes in price from January 2022 as per Cox Automotive, an auto data company — while luxury vehicles and SUVs have experienced the biggest price decreases.

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

As used-car prices drop, tempting potential buyers, the increase in interest rates will mean that those who have to finance their purchases are likely to feel the pressure of an overpriced market.

Car buyers who profit of lower prices and finance purchases amid increased interest rates could pay more for their car for the duration of the loan. Along with a larger monthly installment, they may face negative equity later, finding themselves .

Fluctuating trade-in values

Based on J.D. Power the firm that conducts research and data the trade-in of vehicles in December were able to receive the equivalent of $786 more in value when they were that were traded in June. Since dealerships are expected to earn less on used-car sales, trade-in values are expected to continue to decline in comparison to the prior year.

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

«It’s going to be a significant drop of what you’ll receive from the trade-in price compared to if you were looking for a car at the end of September» says Terrance Gandy, the used-car sales manager for Route 44 Toyota in Raynham, Massachusetts.

Inventory levels have increased, but remain relatively low. levels

Automakers are working towards pre-pandemic production levels and used cars are becoming more affordable, consumer demand will continue to be high due to the car shortage in the previous years, according to J.D. Power. This will reduce the stock of used vehicles because more people are choosing to purchase vehicles after waiting for used car prices to drop that reached their peak in September.

«Even even if prices come lower,» says Yoon, «for the next few years, we’re going to be a million of cars short of used car inventory.»

However, it will let some consumers be in a stronger position when it comes to bargaining offers for trade-ins.

«They have a much better chance of getting a deal right now, because dealers must get these [new] vehicles off their lot,» says Gandy. «The ball is kind of in your court if you do have a trade-in because right now these dealers need your car.»

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

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