New vehicle affordability showed significant improvement in October, as lower interest rates, increased incentives, and income growth all worked in favor of consumers.
According to the latest data from the Cox Automotive/Moody’s Analytics Vehicle Affordability Index, October marked the best vehicle affordability level since August 2021, signaling a positive trend for prospective buyers.
Key factors driving this improvement include declining average auto loan rates, which fell by 31 basis points to 10.20%, the lowest rate in 15 months. This change, coupled with a rise in auto credit availability, is helping alleviate some of the financial strain on consumers. Despite new vehicle prices continuing to rise, which saw a modest 0.2% increase in October, higher incentives from automakers and a year-over-year income growth of 3.5% are helping offset these costs, making vehicles more accessible.
Cox Automotive’s Chief Economist, Jonathan Smoke, noted that the combination of these factors is driving more robust new vehicle sales as the year progresses. He stated, “Auto loan rates are beginning to decline, offering some relief to consumers. These improvements in auto credit, along with increased incentives from automakers, are driving new-vehicle sales as we approach the end of the year.”
In addition to improved affordability, consumers are benefiting from a decline in the typical monthly payment for a new vehicle. The average monthly payment fell 1.5% in October, dropping to $743 from the previous month’s $754. This represents a notable decline from the peak of $795 per month in December 2022. Furthermore, the number of weeks of median income required to purchase the average new vehicle has also decreased, improving to 37.4 weeks from 38.0 weeks in September. This is a significant improvement compared to 40.7 weeks at the same time last year.
While the road to affordability remains challenging due to persistently high vehicle prices, the combination of falling interest rates, increased incentives, and rising incomes provides a much-needed relief to buyers.
Cox Automotive and Moody’s Analytics will release the next update of the Vehicle Affordability Index on December 15, 2024, offering additional insights into affordability trends for the upcoming year.
