Why you should wait before buying your first set of wheels

Those thinking of getting their first car could be better off waiting, if they can, as prices of cheaper used cars could fall substantially by the end of this year.

Some second-hand cars, such as the Mazda 2 and Toyota Yaris, are changing hands for more than they were a year ago when prices for most used cars peaked. While prices of more expensive used cars are coming down after their surge during the worst of the pandemic, prices of most entry-level used cars are yet to budge from their pandemic highs.

Figures from Datium Insights show used-car prices peaked during March, April and May in 2022, at nearly 50 per cent higher than in January 2020, just before the pandemic’s onset and the ensuing disruption to motor vehicle production that crimped new vehicle supply.

Prices of used cars favoured by first-time buyers are yet to fall after surging during the pandemic.Credit:Rob Homer

Along with very long wait times, new car prices shot up during the pandemic. That saw some would-be new car buyers switch to near-new second-hand cars, driving their prices higher.

The supply of new cars in Australia is improving as output from factories increases, following the COVID-19 lockdowns and an improving supply of computer chips.

Tanim Ahmed, head of business intelligence and product at Datium, says while prices of more expensive used cars have fallen since their peak, they are still more expensive than before the pandemic.

The prices of entry-level second-hand cars – those passenger and SUVs that sell for under $30,000 – are still near their peak, Ahmed says.

David Lye, founder of car buying service Private Fleet, says it is likely cheaper used cars are holding their value at pandemic highs because of rising interest rates and cost-of-living pressures.

Faced with higher repayments on car loans, some of those who were looking to borrow to buy a new, or near new second-hand car have likely decided to buy a cheaper second-hand car with cash instead, Lye says.

The sharp rise in the cost of living is also likely to have created more demand at the cheaper end of the used car market.

The Toyota Yaris is one of the more popular second-hand cars.Credit:Paul Bradshaw

“If I was advising a first-time buyer who says they need to get a car, I would suggest holding off until the end of this year, if they can,” Lye says.

He says the motor vehicle market will return to something like normal, with the supply of new cars continuing to pick up.

Many economists say the Reserve Bank of Australia is nearing the end of the rate-rising cycle, with some even suggesting the bank could cut the cash rate by the end of this year.

Datium Insights sampled the prices of models that are less than three years old and have 60,000 kilometres on their odometers, from among those popular with young drivers.

It found the Kia Cerato changed hands for more than $18,000 during the two months to February 23, this year, about the same as 12 months earlier. A Toyota Corolla traded at just over $19,000 during both periods.

However, several models sold for more this year than the year prior. Suzuki Swifts fetched almost $17,000 this year, compared to about $15,400 in early 2022.

The Mazda 2 sold for just over $21,000 in the two months to February 23, compared to almost $15,500 a year ago, while the Toyota Yaris traded at just over $14,000 a year ago, compared to almost $19,000 this year.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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