Cars make money like houses, for now

0


[ad_1]

Financially, your car behaves more like your home right now, bringing new opportunities and risks that are hard to predict.

Used vehicle values ​​have broken records over the past year, with an all-time high inflation rate of 24%, according to the latest official data. It’s painful for car buyers, but there’s a less-discussed flip side: Now is the perfect time to own a car.

US auto loans look like home loans, but normally assets behave differently. Typically, homes increase in value while vehicles depreciate. This has the effect that car owners often have negative equity in their cars, which means they owe more than the value of the car. While this is a stressful situation for owners and their lenders, it is almost routine for car owners. People often make a difference when they trade in wheels, whether it’s with cash or additional debt.

But these are not normal times. As the value of used cars has skyrocketed, the proportion of auto loans that are underwater has declined dramatically. This can be seen from the exchange values. The percentage of vehicles with negative equity when trading was 17.6% in September, the lowest since 2009, according to car buying data website Edmunds. This number typically exceeded 30% in the years leading up to the pandemic.

SHARE YOUR THOUGHTS

Did you try to buy or sell a used car during the pandemic? Join the conversation below.

Concretely, this means that cars can be treated a bit like houses during a real estate boom. Many consumers may benefit from refinancing because the additional equity in their vehicle may qualify them for a lower interest rate. And this is a great time to reduce or reduce the number of cars you own. Anyone with a 2014 model year is especially lucky: Average transaction prices involving seven-year-old vehicles were 38% higher in September than a year earlier, Edmunds found.

It is also a good time to be an auto lender. The value of collateral has skyrocketed and defaults are low, possibly because consumers received government money during the pandemic. According to Experian, about 1.3% of borrowers were behind on their 30-day payments in the second quarter, up from 2% in the same period before the 2019 pandemic.

The most obvious losers in this situation are those who also feature in the real estate boom story: first-time buyers. Especially since auto market conditions are likely to normalize, although this shows all signs that it will take a long time.

Over the past two months, consumers have paid on average more than the manufacturer’s suggested retail price for new vehicles. It is hard to imagine these vehicles as capable on the used market as those purchased during the most typical years of plenty. There could be an increase in negative stock trading in a few years.

Perhaps the biggest risk in the current situation is quite simply the uncertainty: no one has experienced an automotive market like this and the unexpected results it could lead to. Rising asset prices have a way of appearing primarily to create winners. Losers tend to appear further down the road.

Write to Stephen Wilmot at [email protected]

Stock selection ranking heard

Copyright © 2021 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8

[ad_2]

Leave A Reply

Your email address will not be published.