Used car prices have fallen for 4 consecutive months

Used car prices are finally coming down, but that doesn’t necessarily mean it’s a good time to buy.

The average price of a used vehicle has fallen for four straight months, dropping below $29,300 in July, according to automotive research firm Edmunds.

But don’t pop the champagne in celebration just yet.

“We are still a long way from what anyone who has bought a used car in the past will be able to identify with,” says Ivan Drury, chief knowledge officer at Edmunds.

If prices are heading in the right direction, they remain historically very high. The highest average used vehicle price ever at Edmunds was $29,969, won in December 2021. Prices have come down fairly steadily since then, but not by much.

Compared to July 2021, used car prices are up 7.4%, or about $2,000 more. In February 2020, before the pandemic, used cars sold for around $20,700 on average.

The recent price drop isn’t noticeable enough to make people rush to a dealership. But the trend gives you “the gift of extra time,” says Drury. In other words, you probably won’t have to make rash buying decisions for fear of a price spike like in past months.

On the other hand, cheaper used car prices could have the opposite effect for those looking to swap their vehicle to bring down the price of a new one.

“They will likely start to see depreciation diminish the value of their vehicle, which could make someone want to line up their next purchase sooner. [rather than] later,” says Drury.

In July, the average trade-in value for a used vehicle was around $23,500 – an all-time high, but down 1.6% from the previous month.

In short, the second-hand market is still out of whack, and you may even come across certain models of used cars at a higher price than the brand new version.

Car payments on the rise

Another reason you might want to keep the champagne corked? Interest rate on car loans rise – and higher rates may negate the benefit of a cheaper purchase price.

“Affordability has deteriorated as we have seen large increases in interest rates, particularly in recent months,” Cox Automotive chief economist Jonathan Smoke said in a recent report. automotive market report.

In July, interest rates for used car loans hit 8.8%, according to Edmunds, bringing the typical monthly payment to $564, a serial high. Compared to July of last year, when average monthly payments were $502, with an APR of 7.5%. (For new cars, whose average prices now exceed $47,000, many Americans are paying $1,000 per month or more.)

Several factors go into the rate of a car loan, but it is broadly based on the benchmark rate set by the Federal Reserve. The Fed has already four times the rates this year in order to tame inflation, and the central bank has signaled that it plans to do so again in September. As a result, interest rates on auto loans have jumped across the board in 2022.

Even when your auto loan rate is only slightly higher at the time of purchase, it can lead to a noticeable increase in your monthly payment. And when it comes to affordability, monthly payments are arguably more important than the purchase price itself.

Case in point: In December 2021, when used vehicle prices hit an all-time high, the typical monthly payment was actually $23 cheaper than it is now.

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