New cars were more affordable in November than at any point in the last two years. Rising incomes and increasing discounts combined to render a small average price increase irrelevant.
The name of the Cox Automotive/Moody’s Analytics Vehicle Affordability Index makes it sound like something only economists would be interested in. But we think it’s the best way of understanding how much cars cost the average American.
The index measures how long the average earner would have to work to pay off the average new car. Very few of us can buy a new car with cash. Most of us borrow to buy and pay it back over time. When cars get comparatively less expensive, less of your working life goes to covering your simple transportation needs.
The index is a product of Kelley Blue Book parent company Cox Automotive.
It hovered between 33 and 36 weeks for most of a decade before the COVID-19 pandemic changed the math of car ownership. But it’s down from a peak of 44 weeks last December.
But last month, it hit just 38.5 weeks. It will take time for it to return to something like normal. But trends are good.
2023 new car prices have now stayed under 2022 prices for three straight months. Lenders have begun lowering sky-high interest rates as the Fed has held its own rate steady. The average new car loan rate almost reached 10% in October and is now down to 9.6%. The average used car loan rate peaked at 14.4% in mid-November and is now down to 14%.
And automakers are increasing the incentives they advertise to get buyers into the dealership.
Median incomes, meanwhile, grew by 0.3% last month. Americans are making more money, seeing lower new car prices, and spending less to borrow money to buy them.
As a result of these changes, the estimated typical monthly payment declined 0.1% to $766 from $767 in October. The average monthly payment peaked at $796 in December 2022.
