Falling Car Prices May Signal End to Cost Outpacing Incomes | Edmunds

Falling Car Prices May Signal End to Cost Outpacing Incomes

LOS ANGELES — For the first time in 35 years, buying a new vehicle may not be out of reach for a median-income U.S. household, according to the Auto Buyer's Affordability Index.

The current ABAI score stands at 54.1, suggesting that a buyer at the median U.S. household income of $54,457 can afford to pay $16,448, or 54.1 percent of the October 2014 new light-vehicle average transaction price of $30,382.

However, a statement released Wednesday by ABAI publisher Requisite Press notes that its research shows "transaction prices have recently begun to weaken under ideal conditions for strength," while household incomes are on the rise.

So while the 54.1 percent figure may sound discouraging, the ABAI has actually risen 3.8 percent from the April 2014 value of 52.1 percent, which corresponds to $653 in additional buying power for consumers.

And, according to Requisite Press, whose data goes back to 1970, if the trend continues into 2015 we could see the first time since 1980 that median household income has maintained a greater increase than average new-car expenditures.

"New-car affordability is likely to improve in the coming days if we can avoid an income slowdown," said Phil Kelton, president of Requisite Press, in the statement. "The selection of affordable models is best increased by competition, but a sustained improvement in affordability will certainly give it a boost."

Requisite Press recommends that consumers take advantage of the increasingly favorable conditions by maximizing their buying power at every step in the new-car shopping process: sale price, trade-in value, financing and extra-cost add-ons. One sound practice is to follow the 20-4-10 auto financing rule, which suggests a minimum 20 percent down payment, a maximum 4-year loan term and monthly payments of no more than 10 percent of gross household income.

Another good idea is to rely on the Edmunds.com Car Buying Tips for a sensible approach to purchasing a new vehicle. Tools like Edmunds Price Promise, and True Market Value, as well as a variety of payment calculators and other useful information will help reassure buyers that they're well-equipped to shop for a car and handle the transaction.

Edmunds says: If this trend continues, consumers should be in a good position to start shopping for a new vehicle.

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