The monthly payments made by people who have purchased a new vehicle hit a record high in May, according to the Cox Automotive/Moody’s Analytics Vehicle Affordability Index.
“New-vehicle affordability in May was much worse than a year ago when prices were lower and incentives were higher. The estimated number of weeks of median income needed to purchase the average new vehicle in May was up 19 percent from last year,” the report stated.
The number of median weeks of income required to buy an average new vehicle rose from 40.8 weeks in April to 41.3 weeks in May. This is the fourth consecutive increase in as many months.
Moody also said there is a possibility of car prices dropping later this year.
“Although prices are up for May, it's only 1 percent, and so that indicates ... we may be headed toward a place where the prices will start to decrease.”
The average balance of new auto loans for the first quarter of 2022 grew by 15.5 percent year-over-year to hit $28,415. The average monthly payment of vehicle purchases, including both new and used vehicles, rose to $556 during this time. This is an increase of about $100 in a period of over four years.
Tighter dealer inventory of vehicles, as well as international supply chain issues, COVID-19 lockdowns in China, and Russia’s war against Ukraine, have all contributed to eroding vehicle affordability and softening sales, according to TransUnion.
Moving forward, the organization believes the shutdown of international factories will lead to a growing lack of inventory for the rest of 2022.
In addition to rising vehicle prices, increasing inflation will also affect the purchasing power of prospective buyers. TransUnion is anticipating lenders will offer consumers extended loan terms to offset challenges posed due to affordability issues.