In January, the Cox Automotive/Moody’s Car Affordability Index showed an improvement for the first time in six months in new vehicle affordability. Auto loan rates hitting a new 20-year high presents some difficulties, but they are compensated for by falling new vehicle prices, rising incentives, and rising wages.
The median number of weeks of income required to buy the typical new car in January fell from an upwardly revised 44.7 weeks in December to 44.0 weeks.
The rise in manufacturer incentives, a 0.6% gain in median income, and a 0.6% decrease in the average new-vehicle transaction price from December all contributed to affordability. An additional 12 basis points were added, bringing the average interest rate to 9.51%1. These contradictory actions caused the expected usual monthly payment to decrease 1.0% to $780 from a record-breaking, upwardly revised $788 in December.
According to Jonathan Smoke, chief economist at Cox Automotive, “even if rates creep up, the dynamics hint to how affordability might stabilize – or perhaps improve – if we continue to have growth in incentives, moderating costs, and growing earnings.” However, as long as prices and rates remain at or close to these levels, the average payment is in a separate stratosphere that fundamentally restricts the possible market.
A year earlier, when prices were higher, incentives were higher, and rates were lower, new-vehicle affordability was substantially worse. The anticipated number of weeks of median salary required to buy the typical new car in January increased 8% over the previous month.
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