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There’s still a ways to go before used car prices come back down to earth.
While prices were 8.8% lower in December from a year earlier, consumers continue to pay more for used cars than they would if typical depreciation expectations were in play, according to car-shopping app CoPilot, which tracks those price premiums in a monthly report.
Last month, the average price for a used car was $30,899, according to CoPilot. That amount is $7,146 (or 30%) more than if projected depreciation forecasts had held true. However, the price is headed in the right direction for consumers: Six months ago, the app estimated, car buyers were paying about $10,000 above “normal.”
“With the average price premium still at 30%, used car prices in America still have a long way to fall before they return to normal,” CoPilot’s report notes.
Demand in the used car market skyrocketed during the pandemic as supply chain issues hampered automakers’ ability to produce new vehicles. That situation is now easing, with modest improvements in dealer inventory as rising interest rates put pressure on affordability. The average price of a new car is $46,382, according to an estimate from J.D. Power and LMC Automotive.
Yet turning to a used car generally doesn’t yield a better rate when financing. The average interest rate on a used car loan was 10.25% in December, compared with 6.68% to finance a new vehicle, according to Edmunds. That compares with 7.4% and 4.1%, respectively, a year earlier.
In addition, the rate you pay is partly based on your credit score — the higher that three-digit number, the lower the rate you can qualify for.
And, of course, the price depends on the specifics of the car itself.
By age, nearly new vehicles (1 to 3 years old) have an average listing price of $40,273, which is $9,606, or 31%, more than the projected normal amount of $30,667, according to the CoPilot index.
In the 4- to 7-year-old range, the average price is $29,400, an amount that’s $6,731, or 30%, more than the “normal” price of $22,669. Vehicles 8 to 13 years old come with an average price of $18,018, or $4,621 more (about 35%) than the previously forecast $13,397.
Some car prices have dropped more than others. The chart below shows the 10 used cars whose prices fell the most in two months (September to December), according to iSeeCars.
Meanwhile, the squeeze on new car production during the last couple of years may serve as a headwind in the used car market going forward.
“Inventory shortages of new cars in 2021 and 2022 mean that there are noticeably fewer [of those] model-year vehicles on the road today that will become used cars in the future,” said Joseph Yoon, consumer insights analyst for Edmunds.
Additionally, Yoon said, many 1- to 3-year-old cars that end up at dealerships for sale are leased cars that were returned, and the number of customers leasing their cars has dropped to 16% in December from 29% two years earlier.
“Rental fleets also suffered dramatically from new vehicle shortages, further reducing a reliable stream of late-model used vehicles for consumers to choose from,” Yoon added.