The average cost of used cars in Australia has now been falling for six months, offering some relief to buyers priced out of the hot market, according to a new report.

    Compiled by Moody’s Analytics, the latest Used Vehicle Price Index shows transaction costs decreased a further 2 per cent from October to November.

    The data shows prices for used vehicles are now lower on average than they were at the start of the year. In May 2022, used vehicle prices were 18.4 per cent greater than May 2021.

    Things aren’t exactly ‘normal’ yet though. Average used vehicle prices are still 55 per cent greater than they were in January 2020, just before COVID wrought havoc.

    This date is no coincidence. The pandemic caused supply of new cars to dry up, while inflationary factors have made the bite deeper. These two factors sent demand for used vehicles skywards, which in basic economic terms is a driver of higher prices.

    “Used-vehicle prices continue to fall back towards earth. Prices in November fell yet again, marking the sixth consecutive month-to-month decline,” the report said.

    The primary driver of price declines has been the improvement of global supply chains, particularly in the area of semiconductor chip supply.

    Moody’s added that, besides the supply side of the equation, there are “increasing demand-side pressures growing in the Aussie vehicle market”, alluding to inflation and interest rate hikes, and a reduction in buying power.

    “Used-vehicle prices are expected to continue their broad-based declines over the near-to-medium term as inventories rise and demand wanes. Price weakness is expected to continue through 2023 as the market looks to find true equilibrium prices,” the report found.

    “Still, valuations are not expected to come back to where they were before the pandemic. Prices for all goods and services have risen, including substitute goods including new vehicles, putting a floor in how far prices can fall.

    “The market will continue to pull back at a relatively modest pace as inventories slowly build,” it added, with the caveat that used vehicle prices were subject to macro-economic circumstances.

    “If global economic malaise causes the Aussie economy to perform worse than expected, drastic declines in demand will push prices down further and faster than expected,” the report found.

    “Even on the less extreme side of the risks, demand may be hit more than expected because of rising interest rates. Rising rates may push potential buyers out of the market or shift preference to lower-end vehicles.

    “Add to these risks the possibility of COVID-19 disruptions or geopolitical events, and the downside risks to inflated used-vehicle prices remain high.

    “Nevertheless, our outlook remains for the Aussie economy to weather the surrounding storms fairly well. Despite sustained strain on households, we don’t expect slowing economic activity will push the country into a recession.

    “Moreover, a continued strong labour market will help keep demand steady enough that used-vehicle prices settle in an orderly fashion over the next few years.”

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    Mike Costello
    Mike Costello is a Senior Contributor at CarExpert.
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