New car affordability has been on a roller coaster for years but stayed essentially flat between August and September. It’s not likely to stabilize for long.
We measure affordability by time. Most Americans can’t afford to buy a new car with cash. Instead, we borrow to buy a car and work to pay off the loan.
So, the Cox Automotive/Moody’s Analytics Vehicle Affordability Index measures how long the average American would need to work to pay off the average new car. Kelley Blue Book parent company Cox Automotive publishes the index.
The index stayed between 32 and 36 weeks for most of a decade before the COVID-19 pandemic upset supply chains worldwide and sent prices skyward. It peaked at 44 weeks in December 2022.
It’s been on a slow, steady downward trend ever since. In August, it hit 36.1 weeks — almost normal. The number sat at 36.2 in September – a change so small it was essentially noise.
That doesn’t mean nothing changed in the new car market. “September was the first month in two and a half years in which auto loan rates decreased on a year-over-year basis,” explains Cox Automotive Chief Economist Jonathan Smoke.
The Federal Reserve cut its benchmark interest rate last month for the first time in more than four years. That cut of 50 basis points may not reach consumers in full before the end of the year. However, it has started to show up in consumer auto loan rates, which fell by 15 basis points last month.
It grew easier for borrowers to qualify for a new car loan in September as lenders eased conditions in response.
New car prices rose modestly month-to-month (still down year-over-year), canceling the gains.
The typical payment in September increased 0.2% to $740.
Affordability may improve later in the year as the Fed’s interest rate cut trickles its way to car shoppers, barring anything unexpected. If you’re car shopping, note that the dealers you’re negotiating with held their breath when we said “barring anything unexpected.”
Cox Automotive surveys of dealers find them nervous this season, worried that a tense election season will keep shoppers home.
