Some Americans have enough money to buy their cars with money. But many of us effectively buy our cars with time – we borrow to buy and work to pay back.
Seen through that lens, the soaring cost of new cars in recent years seems more powerful. Getting around costs more, which means we work longer to afford it. A new car takes more of your time.
The name of the Cox Automotive/Moody’s Analytics Vehicle Affordability Index makes it sound like something only economists care about. But you should care. This month’s numbers are a gift to us all.
The index measures how long the average earner would have to work to pay off the average new car. It’s a product of Kelley Blue Book parent company Cox Automotive.
In July, it got better. It has a long way to go to return to something we might recognize as normal. But it’s almost where it was this time last year.
In July, the number of median weeks of income needed to purchase the average new vehicle declined to 42.3 weeks. That’s down from 42.8 last month. It’s almost equal to the 42.2 recorded last July.
It’s still historically high. The index 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.
The overall state of the economy helped as much as stabilizing new car prices. Strong income growth was assisted by lower prices and higher incentives that more than offset slightly higher interest rates.
“After entering the year with affordability at an all-time low, we are finally seeing some improvement,” says Cox Automotive Chief Economist Jonathan Smoke. That “should allow some consumers who were priced out of the market to jump back in.”
The estimated typical monthly payment declined almost 1% from June’s numbers. The average new car buyer in July took on a monthly payment of $762. The average monthly payment also peaked last December, hitting $795.
