Due to Bank of Canada rate cuts, vehicle sales may increase! Find out more about it and what to expect!
According to AutoTrader.ca, used vehicle prices in Canada are expected to keep decreasing. This trend persists even if the Bank of Canada lowers interest rates to make car loans more affordable, potentially boosting sales. The Bank of Canada cut interest rates by 25 basis points in both June and July. Governor Tiff Macklem indicated that more rate cuts could follow if inflation decreases as expected.
In June, the average price of a used car in Canada dropped 8.3% compared to the previous year, settling at $36,342, according to the online vehicle marketplace. Prices reached their peak at $39,725 in January 2023. The biggest year-over-year price drops were observed in Ontario and Quebec, at 10.5% and 10.1%, respectively. Atlantic Canada experienced a smaller decrease of 3.5%.
AutoTrader explains that the used vehicle market is more responsive to changes in interest rates than the new vehicle market. Demand for used cars has softened since the third quarter of last year, when the Bank of Canada’s policy rate was at a 22-year high. This is most noticeable among lower-income consumers, who generally have less savings and spend more of their income on necessities like food and housing.
“We believe there will be an uptick in the sales in the second half due to the much-expected interest rate cuts. How would that impact car prices? We believe there is quite a bit of inventory in the market, which in turn should ‘absorb’ the increase in demand. As such, we don’t expect a big change in the overall pricing direction at this time”, Baris Akyurek, AutoTrader’s vice-president of insights and intelligence, told Yahoo Finance Canada.
Market Trends and Inventory Changes
AutoTrader’s June price update highlighted discounts on used vehicles, with prices dropping for 31% of the inventory – the largest monthly decline since the COVID-19 pandemic began. Additionally, the number of used vehicles listed increased by 28% compared to the previous year.
For new vehicles, prices peaked at $67,817 in September 2023, and as of June, averaged $66,807, a 0.8% annual decrease. The new vehicle market is still recovering from the semiconductor shortage and supply chain disruptions experienced between 2020 and 2023, which led to a shortfall of 1.5 million new cars sold. A recent cyberattack also disrupted sales at many North American dealerships.
“We expect strong new car sales for the next couple of years. They were up in double digits last year, and so far this year on a year-to-date basis. New car listing prices have been stable, but affordability has improved due to lower interest rates. Once the market stabilizes – that is, pent-up demand is satisfied and inventory levels return to normal for most brands – we expect prices to rise in line with inflation, as was the case before the pandemic”, said Akyurek.