A new car remains harder for the average American to afford than it was before the COVID-19 pandemic. But affordability is improving steadily.
My favorite measure of affordability is the Cox Automotive/Moody’s Analytics Vehicle Affordability Index. It measures how long the average earner would have to work to pay off the average car. Few of us can buy a new car with cash. A car is a major expense and, for most working Americans, that means borrowing and spending some of our working lives paying back a bank for our new car.
Cox Automotive is the parent company of Kelley Blue Book.
The index fell to 36.9 weeks in March. That’s not quite pre-pandemic normal. It routinely moved between 32 and 36 weeks for most of a decade until the pandemic hit. But it has now fallen from a peak of 44 weeks in December of 2022.
We’re approaching a point when buying a new car will have about the same impact on your finances as you’re probably used to. The estimated typical monthly payment decreased by 1.2% to $744 in March. That number peaked at $795 in December 2022.
Median incomes grew 0.3% last month, while the average new car’s final sale price fell to near a 2-year low of $47,218.
Even interest rates fell — The typical new vehicle loan interest rate declined 15 basis points to 10.47% in March, which was the lowest average since September.
That change, however, may not last. The Federal Reserve had signaled plans to cut interest rates this year but has since delayed action. Ironically, skyrocketing car insurance prices are propping up inflation – part of what’s preventing the Fed from making a move.
“The positive moves were assisted by the first material decline in interest rates in over two years,” said Cox Automotive Chief Economist Jonathan Smoke. “However, given the move-up in rates so far in April, that decline is likely to be short-lived.”
