New cars grew easier to afford in May after conditions briefly grew worse for car shoppers in April.
The best measure of affordability isn’t price. It’s time. Few Americans buy a car with cash. Most of us borrow to purchase and work to repay the loan. That’s why high interest rates can slow car sales even when car dealers offer heavy discounts.
The Cox Automotive/Moody’s Analytics Vehicle Affordability Index considers that, measuring how long it would take the average earner to pay off the average car loan.
Cox Automotive owns Kelley Blue Book.
The index held steady between 33 and 36 weeks for most of a decade before the COVID-19 pandemic, with its aftereffects, sent it soaring as high as 41 weeks.
The index isn’t quite back to normal, but it fell in May, reaching 37.1 weeks. That’s 2% lower than this time last year.
“The improvement in affordability was a result of improving incentives, lower interest rates, and ongoing income growth,” says Cox Automotive Chief Economist Jonathan Smoke.
The estimated average auto loan rate declined in May by 22 basis points to 9.98%, the lowest average rate in 11 months. Income growth also continued, resulting in a 3.7% yearly improvement.
The average monthly payment fell to $752, down from a peak of $795 in December 2022.
