2024 Outlook on Used Car Prices
After years of skyrocketing prices, the used car market is finally showing signs of cooling down in 2024.
According to data from Edmunds, the average transaction price for a used vehicle peaked at $29,969 in May 2023 – a staggering 49.5% increase from just three years earlier.
However, prices began declining in the latter half of 2023 and are expected to continue this downward trajectory throughout 2024.
| Year | Avg. Used Car Price | YoY Change |
|---|---|---|
| May 2020 | $20,023 | – |
| May 2023 | $29,969 | +49.5% |
| 2024 Forecast | $27,572 to $28,771 | -4% to -8% |
Table of Contents
Economic Headwinds in 2024
Looking ahead through 2024, several economic factors are anticipated to suppress used car prices even further.
The Federal Reserve’s interest rate hikes aimed at curbing inflation are making auto loans more expensive, pricing many buyers out of the market.
Additionally, people are still afraid that a potential recession is coming and could dampen consumer spending on big-ticket items like cars and trucks.
| Factor | Expected Impact |
|---|---|
| Microchip shortage recovery | Increased new car supply, lower demand for used |
| Interest rate hikes | Higher borrowing costs, reduced affordability |
| Recession fears | Lower consumer confidence and spending |
“We’re already seeing a significant drop in consumer confidence when it comes to buying cars, both new and used,” says Jessica Caldwell, executive director of insights at Edmunds.
“If we do enter a recession in 2024 as many economists predict, that lack of confidence will likely translate to even softer demand and lower prices in the used market.”
Jessica Caldwell, executive director of insights at Edmunds
Fed Rate Cut Expectations
Several sources indicate that economists and market analysts are expecting the Fed to start cutting interest rates sometime in the second half of 2024, likely around June or July.
- A Reuters poll showed a slim majority of economists expect the first Fed rate cut to happen in June 2024, though risks are skewed towards it happening later.
- According to Bankrate, 94% of economists surveyed think the Fed may begin cutting rates in 2024, after keeping them on hold in the first half of the year.
- However, the timing of rate cuts could be pushed back further if inflation remains stickier than expected, as seen in the latest February data.
Impact on Used Car Affordability
If the Fed does start lowering interest rates later this year, it could help improve affordability in the used car market in a few ways:
- Lower auto loan rates: A Fed rate cut would likely lead to a reduction in auto loan interest rates from lenders, making it cheaper to finance a used car purchase.
- Increased demand: More affordable financing could boost demand for used cars from buyers who were previously priced out of the market due to high interest rates.
- Stabilizing prices: Increased supply from new car production and higher demand could help stabilize or potentially reduce used car prices that have remained elevated since the pandemic.
The Best Time to Buy a Used Car in 2024
For buyers, the sweet spots for scoring used car deals in 2024 will be the first few months of the year Jan-March) and the last month or two of the year (November – December).
| Time Period | Recommendation | Reasoning |
|---|---|---|
| Early 2024 | Buy | – Typically when we see lower prices, but mainly for older higher mileage vehicles. |
| Mid 2024 | Consider, but may still want to wait | – More inventory arriving, but used prices may lag behind new car market recovery by 3-4 years. |
| Late 2024 | Best time to buy | – Increased inventory will allow dealers to offer better incentives and discounts. – New 2025 models will push dealers to clear out older used inventory. |
“Early in the year is typically when we see some of the lowest used car prices,” says Ivan Drury, senior manager of insights at Edmunds. “Dealers are looking to clear out inventory from the previous year, and there’s also less demand in the winter months.”
However, Drury cautions that the best deals will likely be on older, higher-mileage vehicles.
“Newer used cars that are just a year or two old probably won’t see as significant of a price drop since they’re in such high demand,” he says.
| Vehicle Age | Expected Price Change |
|---|---|
| 1-2 years old | Minimal |
| 3-5 years old | Moderate decline |
| 6+ years old | Largest discounts |
Guidance for Car Buyers in 2024
- Consider Timing: Buyers with flexibility may want to wait until the latter half of 2024 when prices are expected to be lower, provided economic conditions remain stable.
- Focus on Value: Prioritize vehicles that offer the best value for your budget, considering factors such as age, mileage, and maintenance history.
- Negotiate Effectively: With improving inventory levels, buyers should leverage pricing data and negotiate aggressively to secure the best possible deal.
For Sellers, Timing is Everything
On the other side of the transaction, used car sellers will need to be strategic about when they list their vehicle in 2024.
The first few months of the year may be the best time to sell, before prices potentially dip lower in the spring and summer.
| Transaction Type | Optimal Timing | Reasoning |
|---|---|---|
| Buying | Q1 (Jan-Mar) | Lower prices on previous year models, less demand |
| Selling | Q1-Q2 (Jan-Jun) | Capture pent-up demand before market softens |
“Sellers are going to want to get ahead of any seasonal lulls in demand,” advises Drury.
“Listing your car for sale in January or February could allow you to capture more of that pent-up buyer demand before the market softens.”
Overpricing, even by just a few hundred dollars, could deter buyers in a market that favors their negotiating power.
Cash vs. Financing in 2024
For cash buyers able to avoid financing costs, the used car price drops expected in 2024 will make purchases more affordable overall. However, people taking out loans will need to factor in higher than normal interest rates that could offset some of those savings.
| Loan Type | Average Interest Rate |
|---|---|
| Good credit | 8.6% |
| Lower credit | 20%+ |
According to Bankrate data, the average interest rate on a used car loan currently sits at around 8.6% for borrowers with good credit.
Rates could climb even higher if the Fed continues raising its benchmark rate to combat inflation.
“Higher rates can really affect your overall costs when financing a used vehicle,” says Greg McBride, chief financial analyst at Bankrate. “A difference of just a couple percentage points in your interest rate can translate to thousands more paid over the life of a loan.”
Buyers with lower credit scores will feel the biggest impacts, often paying upwards of 20% or more in interest.
In this type of high interest rate environment, the overall costs of financing a used car could potentially outweigh any savings from lower sticker prices.
Used Car Price Trends in 2024: A Data-Driven Outlook
Based on the data and expert analysis, here’s what buyers and sellers can expect for used car prices in 2024:
- Used vehicle prices are projected to decline 4-8% year-over-year according to Edmunds forecasts
- The biggest discounts will likely be found on older vehicles (6+ years old) and less popular models/brands
- Prices may bottom out in late spring/early summer before rebounding slightly in the fall
- Interest rates on auto loans will remain elevated, offsetting some savings for financing buyers
- Sellers will need to price aggressively, especially in the second half of the year, to attract buyers
My Final Conclusion and Thoughts
While the used car market won’t be returning to its pre-pandemic norms anytime soon, the outlook for 2024 is much improved for buyers compared to recent years of rapidly inflating prices. Additionally for buyers, lowered interest rates later in the year will provide lower cost financing options.
Sellers won’t have as much of an advantage as they did in 2023, but if they can time it right, 2024 is still a great time to sell a car, especially if it is only a few years old with low mileage.
Sources and Citations for this Article
- Edmunds: https://www.edmunds.com/used-car-prices/
- Kelley Blue Book: https://www.kbb.com/used-car-prices/
- Cox Automotive: https://www.coxautoinc.com/market-insights/
- Manheim: https://www.manheim.com/en/services/consulting/used-vehicle-value-index.html[5] Automotive News: https://www.autonews.com/
- Bankrate: https://www.bankrate.com/auto/used-car-loan-rates/
- NADA: https://www.nada.org/
- J.D. Power: https://www.jdpower.com/business/automotive/used-car-and-truck-guidelines-industry-update
- https://www.pnc.com/insights/personal-finance/spend/when-is-the-best-time-to-buy-a-car.html
- https://consent.yahoo.com/v2/collectConsent
- https://www.bankrate.com/loans/auto-loans/when-will-auto-loan-rates-drop/
