Inflation hammers the auto market, driving up prices
(iSeeCars) – Car prices have increased due to changes in consumer behavior, supply chain issues and other effects of the pandemic; however, household incomes and wage growth have not kept pace. According to the latest analysis from iSeeCars.com, these price increases have led to a decline in car affordability: new car affordability fell by 13.3% from August 2019 to August 2022, while the affordability of used cars fell by 26.7% over the same period.
iSeeCars has analyzed the affordability of new and used cars over time by calculating its Car Affordability Index, which compares median household income to an ideal income to finance a car. An index value of 100 suggests that the household income is exactly equal to the ideal income for buying a car. Values above 100 indicate that the household income is above the ideal income and therefore cars are affordable; similarly, values below 100 suggest that actual income is below ideal income, meaning cars are unaffordable. For example, an index value of 125 means household income is 25% higher than the idealized income, and an index value of 75 means household income is 25% lower. The ideal income is based on typical car loan rates and terms (60 months for new cars and 36 months for used cars), as well as the assumption that car payments should not exceed 10 % of annual household income.
“Due to supply chain shortages and increased demand, price increases for new and used cars have outpaced revenue growth,” said Karl Brauer, executive analyst at iSeeCars. “From August 2019, well before the pandemic shutdowns began, to August 2022, new car prices rose nearly 29% and three-year-old used car prices rose 52%, but revenues only increased by 13%. People still need to replace their vehicles, so the resulting decline in affordability means that buyers accept longer loan terms and pay higher interest rates, pay less money for a down payment or even give up the kind of car they originally wanted for a lower price. cost model in order to make ends meet.
Affordability of new cars
iSeeCars analyzed the accessibility of new cars over time from April 2019 to August 2022. The iSeeCars Car Affordability Index had an average value of 88.8 through 2019, falling to an average of 85.1 in 2020 and 84.3 in 2021 , and finally an average of 79.1 in 2022 through August. “New car affordability remained relatively constant until supply chain shortages in 2021, which caused affordability to decline more rapidly over the past 18 months,” Brauer said.
New cars that are no longer affordable
Using its Car Affordability Index, iSeeCars calculated the price threshold for affordable cars and analyzed new cars that were affordable between April and December 2019, before the pandemic, and which were no longer affordable from January to August 2022. Four models met these criteria.
|New cars that are no longer affordable – iSeeCars study|
|Rank||Vehicle||August 2019 new car prices||August 2022 new car prices|
|Affordable national price of new cars||$32,702||$36,221|
“The Jeep Cherokee and Nissan Frontier had relatively weak demand in their segments, but the lack of new car inventory has increased demand for these vehicles that were previously slow sellers,” Brauer said. “The Kia Sorento was redesigned in 2021 and saw its MSRP increase by $2,450, and the limited-edition Chrysler 300c has generated strong profit margins in recent months.”
Used car affordability
iSeeCars also analyzed the affordability of three-year-old used cars, from April 2019 to August 2022. The iSeeCars Car Affordability Index averaged a near-perfect 99.5 in 2019, dropping to averages of 93.4 in 2020, 81.8 in 2021, and finally 72.0 in 2022. “Used cars were affordable in 2019, but affordability started falling after the pandemic shutdowns began, around March 2022. The decline in affordability accelerated in 2021,” Brauer said. “This coincides with rising used car prices and a lack of used car inventory due to dwindling new vehicle production, which ultimately led to used car buyers paying more for desired vehicles.”
Used cars that are no longer affordable
Using its Car Affordability Index, iSeeCars calculated the price threshold for affordable cars and analyzed three-year-old used cars that were affordable between April and December 2019 but no longer affordable from January to August 2022 The list includes some of the most popular models, such as the Toyota Camry and RAV4, the Honda Accord and CR-V, and the Subaru Forester and Outback. Here are the 33 vehicles that meet the criteria in ascending order of used car prices as of August 2022.
|Used cars that are no longer affordable|
|Rank||Vehicle||3 Year Old Used Car Prices August 2019||3 Year Old Used Car Prices, August 2022|
|6||MINI Hardtop 4-Door||$17,832||$27,403|
|8||Hyundai Santa Fe||$20,406||$27,406|
|ten||MINI Hardtop 2-Door||$17,239||$27,708|
|24||Volkswagen Golf GTI||$19,827||$30,868|
|National Affordable Used Car Prices||$22,906||$25,542|
Two Jeeps top the list, including the Jeep Compass and the Jeep Cherokee. “The supply of these compact Jeep models easily met demand before the pandemic, but their demand exceeded supply after the shortage of new cars forced Jeep buyers looking for a new model to consider. used versions,” Brauer said.
Midsize Kia Sorento and Hyundai Santa Fe are also on the list. “The Hyundai Santa Fe has been redesigned for the 2019 model year, while the Kia Sorento has been redesigned for 2021,” Brauer said. “The increased demand for redesigned models was due in part to improved perception change and the still high value of Hyundai/Kia vehicles. The resulting price increase for these models contributes to their decreased affordability. .
Two MINI models are also on the list, including the MINI Hardtop 4-Door and the MINI Hardtop 2-Door. “These vehicles have likely seen increased demand due to rising gasoline prices, which has caused their prices to rise over the past year,” Brauer said.
The Toyota Camry sedan also makes the list. “Rising gas prices and the scarcity of SUVs have led to an increase in the popularity of sedans like the Toyota Camry,” Brauer said.
“Rising new and used car prices have led to lower vehicle affordability for consumers,” Brauer said. “This means it’s more important than ever for buyers to choose vehicles that fit their budget. And while it may be tempting to take out a longer loan to minimize monthly payments or make a smaller down payment, buyers will end up paying even more for these more expensive cars in the long run.
iSeeCars calculated its Car Affordability Index for new and used cars monthly from April 2019 to August 2022. The Car Affordability Index was calculated as the ratio of median household income (obtained at based on one-year estimates from the US Census Bureau’s American Community Survey (ACS) and projected using income reports from the US Bureau of Labor Statistics) and an ideal income for car payments, based on the price of new cars and three-year-old used cars. An index of 100 means that the ideal income for car payments corresponds exactly to household income; values above 100 average household income are above idealized income for car payments, while values below 100 average household income are below idealized income. Car payments were estimated using interest rates and loan terms published by Bankrate.com, and idealized household income was estimated assuming that car payments should not exceed 10% of the annual household income. The iSeeCars Car Affordability Index was calculated for new and used cars three years old, both nationally and by state.
More on iSeeCars.com:
iSeeCars.com is a car search engine that helps shoppers find the best car deals by providing key information and valuable resources, like the iSeeCars VIN Check Report and Best Cars Rankings. iSeeCars.com has saved users over $354 million so far by applying big data analytics powered by over 25 billion data points (and growing) and using proprietary algorithms to analyze , rate and objectively classify millions of new and used cars.
This article, Inflation hammers the auto market, driving up prices and reducing affordabilityoriginally appeared on iSeeCars.com
Suggest a fix