The average monthly payment for Americans buying new cars jumped to $748 in October, an all-time high.
In October, new vehicle transaction prices were actually just below the record high reached in August. But when you factor in today’s higher interest rates, buying a car has never been more expensive, according to a report released Wednesday by Kelley Blue Book (KBB).
The average transaction price for new vehicles rose $187 from September to October to $48,281, the vehicle appraisal company reports. That’s slightly lower than August’s record high of $48,301, but new car prices are $1,775 higher than a year ago.
Monthly payments on new cars averaged $743 in August, a few dollars lower than the new high reached in October. For comparison, in October 2021, the average payment for a new car was $680.
A large portion of car buyers make monthly payments well above average. More than 14% of Americans who financed a new vehicle in Q3 2022 committed to making monthly payments of $1,000 or more, up from just over 8% a year earlier, according to Edmunds.
Federal Reserve officials have expressed hope that car price growth will slow following recent interest rate hikes and as vehicle inventory improves. Higher interest rates make it more expensive to finance a vehicle purchase through a car loan, which in theory should pull some potential buyers out of the new car market, lowering demand and mitigating some of the upward pressure on prices.
New car prices remain extremely high
October’s rise in new car prices comes after multiple data points showed prices fell from August to September, the first time they had fallen in five months. This drop may have raised hopes that prices were finally on a downward trajectory, but for anyone waiting for new cars to get cheaper, it’s a bad sign that the average price is back to just $20 below the all-time high. .
Used vehicle prices have been falling for several months now, with the latest consumer price data showing a 2.4% drop from September to October. The data illustrates the divergence in price trends for new cars versus used cars, with new car prices rising 0.4% in October.
Auto loan interest rates rose in October in response to higher Fed rates, KBB reports. The combination of high interest rates and high prices is making it harder for Americans to afford to drive, Jonathan Smoke, chief economist at KBB parent company Cox Automotive, said in the report.
Cox tracks vehicle affordability in partnership with Moody’s Analytics based on the number of weeks of median household income it would take to pay for an average new car, including interest. This figure increased to 42.8 weeks in October, compared to around 40 weeks a year ago and around 33 weeks in October 2020.
“Higher rates are already shifting access to vehicles and financing to wealthier consumers,” Smoke said. “Affordability will be challenged for years to come, both in the new and used market. It’s not the Fed’s fault, but it will impact consumer access to transportation.
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