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Used Car Prices are Dropping: What That Means 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 still be prohibitive for some buyers.

by Whitney Vandiver Writer | Car ownership, maintenance of cars Whitney Vandiver writes for NerdWallet about ways car owners can reduce the cost of ownership and maintenance. She has previously written for the oil and gas industry, where she was featured in national publications and international magazines. Whitney started writing because of love and believes that stories that celebrate or aid the LGBTQ+ community the most satisfying to write. In her spare time, she enjoys reading and walking with her Irish Wolfhound. She is based in Houston.

January 1st Feb 2023

Written 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 field of personal finance for over ten years. Prior to being hired by NerdWallet, Julie oversaw editorial teams at NextAdvisor, Red Ventures and Quote.com. Personal finance insights from Julie have been highlighted by Forbes, The Boston Globe and CNBC through the years. Julie’s writings have been featured through USA Today, Business Insider and Wired Insights, among others. Email: .

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Following more than one decade of soaring prices the used car market was cooled by several degrees in December.

The new trend offers some relief to those who buy cars. However, inventories have not yet get to levels pre-pandemic and consumers still miss the purchasing power they had in the year 2019.

Although experts predict that the used car market in this year’s forecast will continue to improve, consumers need to have realistic expectations about what car buying will look like in 2023.

December saw the biggest drop in used-car prices

According to a January 2023 report from CoPilot an app that is personalized for car buying, used-car prices decreased to a record low in the month of December. It was the sixth time in a row month, falling 8.8 percent from January 2022. To put it in perspective, this plunge was the largest annual drop the used car market has experienced since the last month during the Great Recession in June 2009.

But they’ve still got a way to go before they’re in a familiar space The average used car price was 30.1% higher than a market-rate average.

Markets are witnessing “more of a gradual recovery than what is typically a decline,” says Joseph Yoon, consumer insights analyst at Edmunds, an online car guide. “The rates are still extremely highly, extremely overvalued.”

However, interest rates continue to limit used-car affordability

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

According to Edmunds, the average cost of a used-car loan increased from 8.76 percent in July to 10.25% in December. As loan rates become more expensive those who finance car purchases will find they’re paying more for the car, even with lower sticker prices.

What this means for car buyers

People who are planning to purchase an used vehicle this year could be happy to see lower costs for windshields but they’ll still must navigate a crowded car market. Potential car buyers should anticipate certain trends when they shop for a used car this year.

Cheaper prices compared to 2022

As demand for used cars is decreasing, prices are expected to continue to drop. According to J.P. Morgan Research, prices for used cars could decrease by 10 20 to 20% by 2023. Should the Fed continues to raise rates of interest, prices for vehicles will likely continue to fall in a downward trend.

However, not all cars will drop in price at the same pace. Compact cars and pickups have had the smallest changes in prices in the last year, in the opinion of Cox Automotive, an auto company that collects data — while the luxury cars and SUVs have seen the largest price drops.

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

When used car prices fall, tempting potential buyers, the rise in interest rates will mean consumers who require financing for their purchases will continue to feel the strain of the inflated market.

Buyers of cars who take advantage of the falling prices and finance purchases amid higher interest rates might pay more for their car for the duration of the loan. In addition to a higher monthly cost, they could face negative equity later, finding themselves .

Values for trade-ins fluctuate

Based on J.D. Power the firm that conducts research and data, trade-in vehicles in December were able to receive an average value of just $786 in value for trade-ins than the vehicles which were sold in June. Since dealerships are expected to earn less from used car sales and trade-in value will continue to fall compared to the previous year.

Car owners who are looking to trade in their current vehicles should expect lower prices than those last year.

“It’s likely to result in a substantial drop of what you’ll get from the value of your trade-in the price if you were searching for an auto in September,” states Terrance Gandy as the manager of used car sales at Route 44 Toyota in Raynham, Massachusetts.

Increased but relatively low inventory levels

Automakers are working towards production levels that are pre-pandemic and used vehicles are getting more affordable, the 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 as more car buyers decide to purchase vehicles after waiting out used-car prices which reached their highest in September.

“Even the prices do go downwards,” says Yoon, “for the next few years we’ll still be millions of vehicles short on used cars.”

This will allow certain consumers gain a leg up in negotiations over trade-in deals.

“They have a better likelihood of negotiating now, because dealers must get these [new] vehicles off their lot,” says Gandy. “The ball is in your court if you do decide to trade-in your vehicle because dealers want your vehicle.”

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

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