Used Car Prices are Finally Dropping, But We Still Can’t Afford Them

You’re not alone if you feel like prices have been outrageous recently while shopping for a new or used car. In mid-October 2022, iSeeCars conducted a study on the affordability of used cars from August 2019 to August 2022. And what did the study find?

Used car affordability -that is, how well the average consumer can afford a used car when comparing actual income to ideal car buying income -decreased by over 25% in just 3 years. What happened to the automotive market, and what does this mean for today’s car buyers?

Supply and Demand, Inflation, and Income Affecting the Automotive Market

If you’ve been keeping track of automotive news, you’ll know that pandemic-related labor and equipment shortages have hit automakers very hard in the past year.

This led to a decrease in new vehicles being manufactured and sold, increased demand for used cars with no supply jump, and skyrocketing prices for what vehicles customers could find. Add in a major inflation surge in 2022, and cars are more of a dream than a reality to most.

According to iSeeCars, there’s another problem -car prices have gone up as much as 25% in the last 3 years, but incomes have only grown by 13% on average. So even as used car costs stabilize and go back down, the decrease isn’t enough to compensate for the lack of income many suffer from.

The iSeeCars Study and What it Means for Today’s Car Buyers

iSeeCars based their study on ideal vehicle purchase metrics called the Car Affordability Index -the perfect income for financing a car, typical interest rates for a 36-month term for used cars and 60-month term for new ones, and an assumption that payments shouldn’t total more than 10% of a household’s annual income.

This Index was then compared to median household incomes -the closer the ideal was to the actual, the closer to 100 the affordability score. In 2019, the affordability score was 99.5, but in 2022 it’s only 72.

That’s not even considering that finance term lengths are getting longer, interest rates are rising, and car payments are often more than 10% of annual income.

Even taking the study with a grain of salt, the results don’t lie -people are struggling to afford used cars in 2022 that they could buy pretty easily in 2019.

Important Considerations for Used Car Buyers Going Forward

Karl Brauer, the executive analyst, reporting this information for iSeeCars, said the results of this study “means it’s more important than ever for shoppers to choose vehicles that fit their budget. And while it may be tempting to take out a longer loan tominimize monthly payments, or to make a smaller down payment, in this high-interest environment buyers will end up paying even more in the long run.”

What does that actually mean for consumers? It means steering toward only used cars they’re sure they can afford and holding on to their current vehicles for as long as possible while we hope for the market to stabilize and improve.