The average monthly payment for Americans buying new cars climbed to $748 in October, an all-time high.
In October, new vehicle transaction prices were actually just below a record high set in August. But when you factor in higher interest rates today, it’s never been a more expensive time to purchase a car, according to a report Wednesday from Kelley Blue Book (KBB).
The average transaction price for new vehicles increased by $187 from September to October, rising to $48,281, the vehicle valuation company reports. That's slightly lower than the record high of $48,301 in August, but new car prices are $1,775 higher than they were a year ago.
Monthly payments on new cars averaged $743 in August, so just a few dollars less than the new high reached in October. For the sake of comparison, in October 2021, the average new car payment was $680.
A large portion of car buyers are making monthly payments that are far higher than the average. More than 14% of Americans who financed a new vehicle in the third quarter of 2022 committed to monthly payments of $1,000 or more, an increase from just above 8% a year earlier, according to Edmunds.
Federal Reserve officials have expressed hope that car price growth will slow down following recent interest rate hikes and as vehicle inventory improves. Higher interest rates make it more expensive to finance a vehicle purchase through an auto loan, which in theory should take some prospective buyers out of the new car market, lowering demand and easing some of the upward pressure on prices.
New car prices remain extremely high
The October uptick in new car prices comes after multiple data points showed prices declined from August to September, which was the first time they had dropped in five months. That dip may have offered some hope that prices were finally on a downward trajectory, but for anyone waiting for new cars to get cheaper, it's a bad sign that the average price is back to just $20 below the record.
Used vehicle prices have been dropping for several months now, with the latest consumer price data showing a 2.4% decline from September to October. The data illustrates the divergence in new vs. used car price trends, as new car prices increased by 0.4% in October.
Auto loan interest rates increased in October in response to the higher rates from the Fed, KBB reports. The combination of high interest rates and high prices is making it harder for Americans to afford to drive, Jonathan Smoke, chief economist at KBB parent company Cox Automotive, said in the report.
Cox tracks vehicle affordability in partnership with Moody's Analytics based on how many weeks of median household income it would take to pay for the average new car, including interest. That figure rose to 42.8 weeks in October, up from about 40 weeks a year ago and about 33 weeks in October 2020.
“Higher rates are already shifting access to vehicles and financing towards wealthier consumers,” Smoke said. “Affordability will be challenged for years to come in both the new and used markets. It’s not the Fed’s fault, but it will impact consumer access to transportation.”