Used car shoppers are finding higher prices than ever for vehicles.
New vehicle prices have reached all-time highs this year and now used vehicles, the haven for car buyers looking for a deal, have now joined new cars, setting a new pricing benchmark.
The average price of a used vehicle is now $20,084, the highest since 2005 and a 3.5% increase year over year, Edmunds notes, adding that increase is rising as it jumped to 5% in Q3. American preferences for expensive new trucks and utility vehicles pushed new vehicle prices over the $36,000 mark, according to Cox Automotive.
In short, buyers are paying more for a vehicle and with interest rates rising, the options for cutting down that monthly payment are getting tougher.
“Used vehicle prices have been steadily rising over the years, but this is the first time we’ve seen them cross the $20,000 threshold during the third quarter,” said Ivan Drury, Edmunds’ senior manager of industry analysis.
(Millennials spending big on cars — with auto loans to match. Click Here for the story.)
“While an abundance of off-lease vehicles continue to drive up these costs, we’re also seeing consumers flock to purchase lower-priced vehicles, which is dramatically shrinking the supply of more affordable options in the used market.”
Used cars are selling faster and for more money, causing some to consider leasing a vehicle to get a better payment.
Edmunds experts found less expensive vehicles, such as those under $35,000, are selling faster. Right now, those vehicles spend an average of 37 days on the lot, a 5.3% decrease from five years ago. Used vehicles under $10,000, the most affordable used-car segment, are also growing increasingly scarce ― this segment has dropped from 25% of sales during Q3 of 2013 to only 16% of sales this quarter.
In short, buyers are looking to replicate a pattern that has been commonplace for several years now: buying a car to match a monthly payment. With rising interest rates, which are expected to continue trending upward, that’s making things tougher.
In the third quarter, the average annual percentage rate for used vehicles climbed to 8.3%, an 11% increase from last year. The average down payment for a used vehicle hit $2,613 in the third quarter, and the average loan term length rose to 66.9 months, the lengthiest Edmunds has on record since 2008.
(Click Here for more about FCA, Honda and VW leading October sales.)
“Shoppers are attempting to mitigate the increasing costs of financing by putting bigger payments down and increasing their loan terms,” said Drury. “Unfortunately, neither method has been that effective. Average monthly payments hit $400 a month this quarter, the highest level we have on record.”
These things are combining to drive buyers to become leasers as the payments for used cars and leases for new vehicles are favoring leasing prices. Edmunds research found that the average monthly payment for a brand-new Honda CR-V is $486, while the average lease payment is $355, which is just above the average monthly used payment of $348 for the same vehicle.
For the Toyota RAV4, the average monthly payment for a new purchase is $461, whereas the average lease payment is $326, which is $29 less than the average used payment of $355.
“Used-vehicle shoppers are now facing the prospect of payments that could easily put them in a lease for a new vehicle. And, the prospect of owning a car that is nearly 10 years old when it is fully paid off could be a daunting one for some consumers,” said Drury.
(New vehicle prices continue to rise into the fourth quarter. Click Here to find out why.)
“As used and lease vehicle payments continue to rise, it will be interesting to see whether there is a price point that will compel used-vehicle shoppers to begin to make the jump to leasing, or keep playing the long game in hopes of eventually building equity in their vehicle.”