Used vehicle affordability remains a challenge, but is improving.

Even with recent price declines, purchasing a used vehicle can still be expensive for consumers. The average list price for a used vehicle on CarGurus has decreased by 10.5% over the past two years. However, the average monthly payment for those same vehicles is up 2.6% over the same period as rising interest rates have offset any pricing gains.

At the current CarGurus used average listing price of $28.3k, it would take the average median household income 26 weeks to afford a used vehicle. However, there is hope on the horizon. With the Federal Reserve expected to begin lowering interest rates in 2024, coupled with continued declines in used vehicle prices after the spring selling season, consumers could finally see some payment relief in 2024.

The strength in used retail demand at year-end hasn’t carried into January.

One positive trend at the end of 2023 was the surprising year-over-year gains in our Vehicle Demand Index for November and December. This led to hope that we could see this strength carry into 2024 and potentially spark annual sales that hit the high end of our forecasted range. Unfortunately, preliminary data for January suggests that we didn't achieve that carryover, as the index declined 2.9% from the previous year. We'll be closely watching to see how demand develops in February to determine whether we'll have a normal spring selling season for the used market this year or face a repeat of last year's disappointing market.

EVs remain at the forefront of used vehicle price declines, but the leading models are experiencing a shift.

In January, EVs continued to dominate our analysis of used models with the steepest price drops. However, instead of Tesla models occupying the top four spots, as they frequently did throughout 2023, the month saw a surprising newcomer. The Toyota Mirai, a fuel cell electric vehicle (FCEV) took the top spot, while battery electric vehicles (BEVs) filled out the rest of the top 10.

These cumulative declines have driven four models below the crucial $25,000 threshold. This is significant because these vehicles now qualify for a one-time used EV tax credit, potentially fueling further growth in used EV demand.

Other key trends:

• The average days-on-market for a used EV at 82 days is now lower than that of an ICE vehicle at 84 days. However, compared to last year, EV days-on-market have increased while ICE days-on-market have decreased. This indicates a dynamic used market for EVs as inventory levels grow.
• New vehicle inventory continues to recover, with our new Vehicle Availability Index up 62.3% year-over-year. However, plant shutdowns in December and January kept month-over-month gains down to just 1.8%.
• While used vehicle prices continue to see relief, down 1.6% month-over-month, new vehicle prices remained flat.