Interest rates and price hikes are pushing new cars further out of reach – but there’s some good news.
It’s not something that really needs to be repeated, but I’ll go ahead and say it anyway: Buying a new car sucks right now. Not only are prices creeping ever northward, but higher interest rates mean payments are ballooning well beyond what your average buyer can reasonably afford. In fact, according to a new report from market analysts at iSeeCars, buyers now need to take out a 90-month loan to make the average new car “affordable”, though folks are obviously taking on a huge amount of extra baggage in the process. Over that outrageously long 7.5-year period, you’d have to pay around 30% above and beyond the settled price for whichever vehicle you’re looking to score.
Fortunately, with all the news about the market being objectively and collectively insane, iSeeCars did unearth some good news in their data. The firm looked at new and used car prices over the past three years and distilled the data into its “Car Affordability Index” — a comparison of median household income against an “idealized income” for comfortably financing a car. The study notes that while median incomes did increase about 4% over the past year, interest rates and stubbornly high prices have made any car purchase burdensome. At least, that’s what everyone expected, though the picture is a bit more hopeful than it’s been over the past three years since we found ourselves neck-deep in a global pandemic.
How the Car Affordability Index works
For some context, here’s how iSeeCars determines how “affordable” a new or used car is to the average American buyer:
“iSeeCars analyzed new and used car affordability over time by calculating its Car Affordability Index, which compares median household income to an idealized income for financing a car.
An index value of 100 suggests household income is exactly equal to the idealized income for a car purchase. Values above 100 indicate household income is above the idealized income and therefore cars are increasingly affordable; similarly, values below 100 suggest actual income is less than the idealized income, meaning cars are unaffordable. For example, an index value of 125 means household income is 25 percent more than the idealized income, and an index of 75 means household income is 25 percent less. The idealized income is based on typical car loan rates and terms for 60 months and 48 months for new and used car loans respectively, with down payments of 10 percent for new and 20 percent for used cars, and annual car payments no more than 10 percent of a household’s annual income.”
iSeeCars determined median household income for their report from the U.S. Census Bureau’s American Community Survey (ACS) 1-year estimates and the U.S. Bureau of Labor Statistics’ Earnings reports.
Used car affordability has improved considerably since May.
When comparing the average household income against the relative drop in used car prices over the past few months, the market looks much more favorable to actually finding an affordable prospect. According to iSeeCars executive analyst Karl Brauer: “The list of newly affordable used cars includes a healthy mix of luxury and mainstream brands, with nearly every vehicle type represented. Family buyers seeing a three-row SUV, performance enthusiasts searching for a sporty coupe, and fans of hybrid or electric vehicles looking to cut fuel costs and CO2 emissions can all find a car on this list.”
In addition to simply calculating the affordability threshold, this study also lays out 23 used car models up to 3 years old that dropped below that threshold since October 2022. The higher their rank on this list, the more affordable they are against the average 3-year-old price threshold, as of September 2023.
For reference, the average used car price as of September is $33,373. All the used car models in iSeeCars’ list are below that figure, if only just. iSeeCars’ affordability index was 98.36 in October 2022, but rose to 104.03 in September 2023 (per the chart above).
| Rank | Make/Model | % Price Difference below | % Price Drop Since Oct. 2022 | Average 3-Year-Old Used Car Price |
|---|---|---|---|---|
| 1 | BMW i3 | -16.9% | -18.1% | $27,748 |
| 2 | Chevrolet Blazer | -12.9% | -16.6% | $29,062 |
| 3 | Volvo S60 | -11.6% | -14.4% | $29,507 |
| 4 | Alfa Romeo Stelvio | -8.8% | -9.0% | $30,431 |
| 5 | Genesis G70 | -8.0% | -10.9% | $30,689 |
| 6 | BMW 2 Series | -6.8% | -15.8% | $31,116 |
| 7 | Volvo XC40 | -6.2% | -11.7% | $31,302 |
| 8 | Cadillac XT4 | -6.0% | -9.2% | $31,373 |
| 9 | Buick Enclave | -4.2% | -6.4% | $31,986 |
| 10 | Lexus IS 300 | -4.1% | -4.7% | $31,993 |
| 11 | Honda Pilot | -3.4% | -3.6% | $32,230 |
| 12 | Audi A5 Sportback | -3.4% | -12.3% | $32,230 |
| 13 | Nissan Armada | -3.3% | -10.8% | $32,268 |
| 14 | Jeep Grand Cherokee | -2.5% | -5.6% | $32,547 |
| 15 | Audi Q5 | -2.2% | -8.5% | $32,646 |
| 16 | Toyota Avalon | -1.9% | -3.1% | $32,748 |
| 17 | Kia Stinger | -1.7% | -8.8% | $32,811 |
| 18 | Tesla Model 3 | -1.5% | -28.9% | $32,861 |
| 19 | Lexus UX 250h | -1.3% | -9.9% | $32,931 |
| 20 | BMW 3 Series | -1.0% | -6.0% | $33,036 |
| 21 | Ford Ranger | -0.9% | -4.0% | $33,080 |
| 22 | Jaguar E-Pace | -0.2% | -3.5% | $33,303 |
| 23 | Lexus NX 300 | -0.1% | -3.9% | $33,352 |
Among the vehicles on the list, EVs certainly had the biggest price drop. Namely, the #1 BMW i3 and the Tesla Model 3 experienced double-digit price drops, while certain brands known for exceptional resale values, like Lexus, dropped far less substantially.
iSeeCars’ EV Affordability Index jumped from 72.48 (a sign of just how expensive cars were in late 2022 and early 2023) to 90.1 in in September 2023. According to their data, that comes from an average 19.5% drop in EV prices and a 16.6% drop (or $144/month) in payments for used EVs.
“While the average used EV remains beyond the reach of today’s used car buyer,” Brauer said, “they are much closer to being affordable than they were 11 months ago.”
