Australian used car prices are falling (slowly) back to Earth

Used car prices have declined for another consecutive month as we return to some semblance of normality in the secondhand market.

A report from financial intelligence company Moody’s Analytics has found used car prices are now below where they were a year ago, though they’re still “significantly high” when compared with the pre-pandemic period.

More specifically, it has found prices are 59 per cent higher than during the same month in 2019, even if they’re down 12.5 per cent on their peak in May 2022.

The company expects used car prices to drop by 10 per cent overall this year, though this decline could be accelerated if the economy performs worse than expected or if rising rates deter people from making expensive purchases.

January 2023 saw the first year-on-year decline since May of 2020.

Used car prices dropped a further 0.4 per cent from January and overall prices have decreased 2.1 per cent compared with a year earlier.

Moody’s Analytics separates the market into cars and trucks/SUVs, and noted a sharper decrease for the latter – down 2.7 per cent from January, and 15.4 per cent from a year earlier.

Used vehicle prices are expected to continue to come down as supply of new cars and their components improve and as global growth slows down in 2023.

It cites data finding the global semiconductor lead time, or the time it takes for a semiconductor to reach the end consumer, had its largest month-to-month decline in several years last December. It fell to 24 weeks.

The Supply-Chain Stress Index for China has also dropped by 12.2 per cent since its peak in May 2022.

While better component supply and overall new car sales being up 1.8 per cent year over year are both cause for celebration by automakers, dark clouds have been looming in the shape of higher inflation.

It reached a three-decade high of 7.8 per cent in December.

The Reserve Bank of Australia has been trying to address these pressures, injecting 335 basis points’ worth of rate hikes since May 2022 with another 25-basis hike expected in March.

Continued hikes will have a further cooling effect on the housing market, which would in turn affect the borrowing power of car buyers.