Is Now the Time To Buy, Sell, or Trade-in a Car?

By Sean Tucker 02/19/2024 12:00pm

Time to sell a car?

Quick Facts About the Car Buying and Selling Marketplace

  • New car prices have fallen a remarkable 3.5% in the last year.
  • Used car prices fell further, now down 4%.
  • Interest rates are falling slowly — perhaps the car market’s biggest news.

We write several news stories every month tracking changes in new car prices, used car prices, interest rates, and the ability of the average American to afford a new car. It’s been a long time since we’ve written as many positive stories as we have this month.

Conditions are getting better for shoppers looking for almost any type of car. That doesn’t mean everyone should rush out to the dealership as soon as possible. Some might still benefit from waiting. But after several years of volatile market conditions, car shopping doesn’t need to be nerve-wracking anymore.

Tracking car prices can seem chaotic, but in the end it comes down to simple supply and demand. The automotive market has traditionally been oversupplied. That changed for a while during the COVID-19 pandemic and the long recovery from it. But conditions are returning to normal. Many automakers now have so many cars in stock that they have to discount them to sell them and compete for your business with splashy ads and discount programs.

There’s one sour note in all the good news. Interest rates remain historically high. But even that is likely to improve in 2024, as the Federal Reserve has signaled its intent to cut rates later this year.

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

A chart showing the average days' supply of each car brand at the end of January 2024

The chart above tells a remarkable story if you know how to read it.

The key to understanding it is an old automotive industry rule of thumb — dealers try to keep about 60 selling days’ worth of cars in stock. That’s the inventory level, experience tells them, that means they probably have a car you’ll like in stock.

For much of the last three years, many fell well below that target. Global supply chain problems prevented factories from building as many cars as they used to. That proved strangely good for business. Americans paid more for new cars, knowing they were lucky to find anything suitable. Some automakers and dealers even said they planned to keep supplies low indefinitely to keep prices high.

They’ve almost all failed at that. Back to their old habits, almost every automaker has built up more than a 60-day supply of new cars. To compete for your business, they’re back to cutting prices and advertising discounts again.

That doesn’t hold true everywhere. Toyota and Honda dealers can still charge at least MSRP or close to it, knowing they often have more interested buyers than cars. But most of the industry can’t do that anymore. A handful of brands are drastically oversupplied — Ram’s 153-day total is eye-popping to veteran automotive industry analysts.

RELATED: When Will New Car Prices Drop?

With too many cars to sell, dealers are once again offering discounts. The average new car sold for $47,401 in January — 3.5% less than a year ago. More to the point, 5.7% of the average sale price came from discounts. That figure has more than doubled in the past year.

It has room to grow. Discounts routinely made up more than 10% of the average sale pre-pandemic.

But discounts are climbing, prices are falling, and most brands are overstocked. That makes this a buyer’s market. We think prices have further to fall, so you might benefit from waiting longer if you don’t need a new car urgently. But there’s little danger of overpaying this month.

The hard part, instead, is qualifying for a great car loan.

Interest Rates May Fall Later This Year

Low car prices are great. But affordability isn’t just about price. Most of us borrow money to buy a new car and work to repay the loan. Auto credit is the one remaining brake on the market that might make you wait to buy a vehicle.

The Federal Reserve, commonly called the “Fed,” sets the interest rate for overnight loans between banks. Banks then use that rate to calculate rates for every kind of credit they offer. The Fed raised rates to their highest point in more than two decades last year, trying to rein in inflation. It worked, as prices on big-ticket items like cars are finally coming down. But the Fed hasn’t started cutting rates in response yet. Instead, the Fed has signaled that it likely will cut rates this year.

Banks sometimes inch their own rates down slowly when they expect a Fed rate cut. But they can’t afford to go very low.

The typical new vehicle loan interest rate declined to 10.28% from 10.42% in December. That’s still high enough to give many car shoppers pause. Banks have tightened lending standards recently, turning down more borrowers in January than the month before.

With the Fed signaling future rate cuts, that trend could reverse later this year. Some shoppers might benefit from waiting for rate cuts. Still, new cars are growing more affordable. Our favorite measure of car prices doesn’t consider cash. It looks at time.

The average earner would now need to work 37.5 weeks to pay off the average new car. That’s historically high — the number hovered between 33 and 36 weeks for most of a decade before 2021. But it’s down from a high of 44 weeks in December 2022, and the lowest figure in more than two years.

What Used Car Shoppers Can Expect

A chart tracking used car price trends through January 0f 2024

Used car prices fell further than new car prices last month. That’s something we haven’t been able to say in a long time.

The average price advertised for a used car in December was $25,328 — 4% lower than a year before, according to the Cox Automotive analysis of vAuto Available Inventory data.

Used car prices remain higher than in 2019 but have fallen lower than at any point in 2022 or 2023.

That’s happened despite a decrease in supply. Many dealers use the same 60-day target for used cars. The average dealership ended January with just a 48-day supply. But our analysts don’t think that will be a long-term trend. Supply problems are “expected to improve later in 2024,” says Jeremy Robb, senior director of Economic and Industry Insights at Cox Automotive, the parent company of Kelley Blue Book.

Dealerships of some brands have more cars than those of others. Honda and Toyota were the non-luxury brands with the lowest inventory of used vehicles at the beginning of February. Lexus and Acura had the lowest supply among luxury brands.

The most affordable used cars remain the hardest to find, with dealers struggling to keep cars priced under $15,000 in stock. That trend may not change anytime soon. It reflects a new reality about how automakers build cars.

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’re still likely to find affordable cars in short supply on many sales lots.

Older, Less Expensive Cars Harder To Find

If you hope to find an older vehicle and your budget is less than $15,000, these cars remain in short supply. More would-be new car shoppers started buying up the available used vehicles, drawing down the inventory.

Plus, Americans are holding onto their cars longer than ever. The average vehicle on American roads is now 12.5 years old. Automakers also produced fewer cars for several years after the 2008 recession. That leaves fewer higher-mileage, older used vehicles available to sell.

The most accessible used cars are priced between $15,000 and $30,000.

How to Buy a Car Right Now

Couple car shopping at a dealership

If you want a new or used vehicle, be prepared for sticker shock. For new cars, prices remain about 16% 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.

Vehicle quality studies repeatedly show that today’s new cars suffer fewer problems than those from just a few years earlier. That means 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 5.7% 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

Few of us can sell a car without needing to buy a replacement. But, if that’s you, what are you waiting for? You will likely get more for your car, and that’s excellent news. The best way to get the most money for your used car is to sell it privately. But if you don’t want the hassle, there is still an opportunity to sell to a dealership.

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 car 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 Robb, the Kelley Blue Book analyst. “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.

Research your vehicle’s Kelley Blue Book value, then call several local dealerships to see what they’ll offer you for it. Or try our Instant Cash Offer tool, which brings the deal to you from various dealerships without obligation. You can choose your preferred offer or use it to negotiate with others.

Looking Ahead

According to the Cox Automotive/Moody’s Analytics Vehicle Affordability Index, new vehicle affordability improved through much of last year. That trend is continuing so far in 2024.

However, car shoppers can expect the second half of 2024 will look better since any interest rate cut could help affordability. Easing inflation could relieve car buyers if the Federal Reserve lowers rates this year.

Tips for Buying a Vehicle Right Now

A couple purchasing a car

If you shop right now, we recommend a few strategies to help you find the right new or used car that fits your budget.

  1. Expand your search. Widen your search to a broader geographic area.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. 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.
  8. 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.