Is Now the Time to Buy, Sell, or Trade-in a Car?
Quick Facts About the Car Buying and Selling Marketplace
The news is good for car shoppers of all income brackets this month and is steadily improving. Some might benefit from waiting a little longer to shop. But barring anything unexpected, the car market is improving for new and used car buyers this spring.
Car price trends can seem complicated. News stories in the last year have cited microchip shortages, global shipping problems, labor strikes, interest rates, and more to explain them. But car price trends are reasonably straightforward. Supply and demand govern everything.
Car dealers have plenty of supply right now. So you, the shopper, have leverage.
Kelley Blue Book parent company Cox Automotive has access to an immense amount of data about the car market and a chief economist to help us make sense of it. Cox Automotive Chief Economist Jonathan Smoke sums up 2024 succinctly — car sales are “shifting from a seller’s market to a buyer’s market,” he says.
If you’re reading this, you’re probably a buyer. It’s your market right now.
We’ll walk you through what to expect while buying or selling a new or used car or trading one in. Many car shoppers are in both markets simultaneously, with a vehicle to swap. They’re likely to find balanced offers on their trade-in this month. Read on to find out more.
What New Car Shoppers Can Expect
If you asked for a single key to understand the auto industry, we’d give you this one: Long-established practice has most dealerships aiming to keep 60 selling days’ worth of cars in stock. The rule of thumb says with fewer days’ supply, they may not have the combination of colors and features you want in stock. More, and they’re paying to stock cars that won’t sell soon.
Most brands began March with more than 76 days’ worth of cars in stock. When that happens, dealers offer discounts to help sell down the backlog. Many are doing that, and it’s working. They’re still oversupplied, but less so than a month ago.
You can’t count on any dealership you visit being overstocked. Toyota, Honda, Lexus, and Land Rover have low inventory levels that their dealers don’t need to discount much. However, most other brands are at or above their goal.
RELATED: When Will New Car Prices Drop?
In February, incentives made up 5.9% of the average deal – up from 5.7% in January and 3.1% one year ago. With the discount, the average new car sold for $47,244 – 5.4% lower than its peak in December of 2021.
There remains room for growth, however. Discounts routinely made up 10% of the average sale before the COVID-19 pandemic reset expectations in the car market.
But discounts are climbing, prices are falling, and most brands are overstocked. Those are ideal conditions for shoppers. Conditions are so good that a recent survey of dealers finds them feeling down about their prospects.
One sour note taints the mix. Higher interest rates still keep many shoppers from finding an outstanding car loan.
Interest Rates May Fall Later This Year
Up until now, we’ve had only good news. But if you’ve watched the news or applied for credit recently, you know what’s coming.
Shopping for a car right now is easy. Shopping for a loan is not. Very few of us are cash buyers. Most Americans borrow money to pay for a new car. High interest rates are making borrowing a challenge.
The Federal Reserve, called the “Fed,” sets the interest rate for overnight loans between banks. Banks use that figure to calculate rates for every credit they offer. The Fed raised rates to their highest point in over two decades last year, trying to get inflation under control. The effort primarily worked (see the discussion of falling car prices above). However, interest rates remain high, probably due to the Fed’s actions.
The Fed has signaled it plans to cut rates this year but hasn’t started yet. Interest remains stubbornly high. Fed chair Jerome Powell cited the soaring cost of car insurance as one reason the bank hasn’t started cutting rates yet. Car insurance has grown so costly that we recommend buyers get quotes on cars they’re considering before they put money down, lest they buy a car they can’t afford to insure.
Banks inched auto loan rates down a little last month in anticipation of a Fed rate cut. But they can’t afford to do that much. The typical new vehicle loan interest rate declined to 9.73% in March from 10.15% a month earlier. However, more significant declines are likely later in the year, with the Fed signaling future rate cuts. Shoppers might benefit from waiting. Average used car loan rates were 14.59%.
On a positive note, cars are becoming slightly more affordable. The average earner would now need to work 37.1 weeks to pay off the average new car. That’s down from a high of 44 weeks in December 2022 and the lowest figure in more than two years. But the average new car payment in February was still $744.
What Used Car Shoppers Can Expect
The used car market may take years to return to something like normal. The pandemic era disruptions meant automakers built about 8 million fewer cars than they otherwise would have in 2021 and 2022. That’s 8 million cars that will never reach the used market, keeping supplies low for a long time.
However, the used car market is recovering somewhat. Dealers nationwide ended February with an average of 44 days’ worth of cars in stock. That figure is up 9% from a year ago. The wholesale prices dealers pay for the used cars they later sell have been declining, too. Trends in wholesale prices become trends in retail prices after six to eight weeks.
Prices will likely decline as tax return season sees Americans heading out to used car lots in more significant numbers.
When shoppers arrive, they buy more expensive, lightly used cars than usual. Buyers drove home more than 300,000 used cars priced over $35,000 last month. Vehicles priced between $15,000 and $20,000 had the next highest level of sales, at over 280,000.
Used vehicles priced under $15,000 remain the hardest to find.
Automakers Are Building More Expensive Cars
Though short-term trends are pushing new car prices down, automakers are focusing efforts on building more premium cars. The era of the inexpensive car is disappearing. A recent analysis finds that sales of cars priced at $25,000 or less have fallen by 78% in just five years. Five years ago, automakers offered 36 new models in that price range. This year, that number is just 10. Meanwhile, those priced at $60,000 or higher have grown by 163% during the same period.
Cox Chief Economist Jonathan Smoke explains that last year’s Federal Reserve interest rate hikes kept some shoppers from buying cars. “This trend induces automakers to focus on profitable products for consumers who can afford to buy, which keeps less affluent consumers out of the new-vehicle market altogether and limits what is available and possible in the used market for years to come,” Smoke cautions.
Dealers are pushing back, telling automakers they need more affordable cars to sell. But correcting the problem will take time. You’ll likely find affordable cars in short supply on many sales lots.
Older, Less Expensive Cars Harder To Find
The most accessible used cars are priced between $15,000 and $30,000.
How to Buy a Car Right Now
If you want a new or used vehicle, be prepared for sticker shock. For new cars, prices remain about 14% higher than three years ago when the pandemic seemed never-ending. But take stock that your next car will likely last longer and help you drive safer than ever with all the technological advances and offerings.
RELATED: Buying Older, Used Cars in 2024
Vehicle quality studies repeatedly show that today’s new cars suffer fewer problems than those from just a few years earlier. Buyers of higher-priced used cars will likely see the vehicle driving on the road even longer. The same goes for those buying new ones.
With most automakers now building such durable cars, they compete by adding more high-tech features. Features like adaptive cruise control and Apple CarPlay are now more common than ever on entry-level vehicles. Read on to see our tips on buying a car below.
How to Leverage Incentives to Buy a New Car
Car incentives made up 5.9% of the average deal in January — up from 2.8% a year before. To take advantage of incentives, read about our monthly best car deals to find dealer or manufacturer incentives, including cash back and lower interest rates for financing your next vehicle.
RELATED: How to Buy a New Car in 10 Steps
Selling a Car Right Now
PRO TIP: If selling a car, consider selling it peer-to-peer using Kelley Blue Book’s Private Seller Exchange marketplace. It’s a low-cost method that helps consumers earn more for their vehicle than selling to a dealership.
Trading in a Car Now
Falling used car prices mean a little less for your trade-in, but the ongoing shortage of used cars will be with us for years. You’ll still likely see respectable offers for your used car this month.
“Fewer new vehicles produced in 2021 meant lower leasing, which equals fewer lease maturities starting this year,” said Kelley Blue Book analyst Robb. “After being low for the last two years, used-vehicle supply is expected to improve later in 2024 — but that will be without much help from off-lease supply.”
Searching for a decent price for your trade-in is still a good idea by shopping it around. Each dealership tries to keep a balance of vehicles on its lot. Sometimes, the one you want to buy from doesn’t need your trade-in desperately, but a competitor does.
Looking Ahead
According to the Cox Automotive/Moody’s Analytics Vehicle Affordability Index, new vehicle affordability improved throughout last year. That trend is continuing so far in 2024.
However, car shoppers can expect the second half of 2024 to look better since any interest rate cut could help affordability. Easing inflation could relieve car buyers if the Federal Reserve lowers rates this year.
RELATED: 10 Best Used Car Deals
Tips for Buying a Vehicle Right Now
If you shop right now, we recommend a few strategies to help you find the right new or used car that fits your budget.
- Expand your search. Widen your search to a broader geographic area.
- Stay patient. Call dealerships early and often to see what’s coming off the trucks for those harder-to-find vehicles. Leave a refundable deposit if you want first dibs.
- Buy a less expensive model. With higher car loan interest rates, consider buying a cheaper vehicle model instead of a more expensive one in the lineup you’re considering.
- Understand the timing. Be prepared to shop for several weeks, and know it involves calling or visiting several dealerships as you look for the right fit.
- Don’t jump. Shop around your trade-in as aggressively as you seek out the right car. Don’t accept the first offer. You could sell yourself short.
- Weigh your options. Don’t just look for a car; search for the best interest rates from banks or credit unions. Then, weigh all your options, including financing incentives and deals at the dealership, if that’s where you buy your next vehicle. Also, you may find the price differences of some newer model used vehicles are almost the same as new cars. Just keep all your options open during your search.
- Don’t pay dealer markups. If you see a markup, sometimes called a market adjustment, on your final invoice, ask that it be removed or shop at another dealership.
- Question all add-ons. If your sales summary includes entries like “window tint” or “fabric protection” and other add-ons you didn’t request, ask for those line items to be removed from your invoice. Many dealers tack on these extras to make quick profits.
It may make sense to keep your existing car for another year. If you must buy, be prepared to take excellent care of your next car to keep it running for a long time.
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This article has been updated since it was initially published.
