Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / Why Your Raise Is Finally Beating the Cost of a Used Car
Transcript
- Lucas: So let me start with a number that I think is going to surprise a lot of people. The average price of a used car in the United States peaked in early 2023 at just over thirty-one thousand dollars. As of this month, it's down to about twenty-seven thousand. That's a drop of nearly fifteen percent. Luna: And wages have been climbing. Latest data out last month — average hourly earnings for private workers hit thirty-seven dollars and sixty cents. That's up about three percent year over year. Lucas: Right. And that combination — falling car prices, rising pay — means a used car is finally becoming more affordable in real terms for the first time in basically four years. Luna: It's a nice feeling because for so long it felt like every time you saved a little extra, the price just moved higher. Lucas: Exactly. And look, we've been tracking this 'raise beating' series for a while now — rents, groceries, insurance, all those. But I think the used car market is a particularly interesting case because it captures so many forces at once: supply chains, interest rates, consumer behavior, even geopolitics. Luna: I'd add that it's also a category with a lot of emotional weight. A car isn't just a transaction — it's mobility, freedom, access to jobs. Lucas: Absolutely. And before we dig into the mechanics, I want to mention something that makes this possible. We keep this show completely ad-free, and that's a deliberate choice. If walking through the economy with us has made something click or helped you think about your own money differently, you can support that at buymeacoffee dot com slash fexingo. It's a simple way to keep this independent and without commercials. Luna: Yeah, it really does make a difference. Even a few dollars helps us keep doing what we're doing. Lucas: Okay, back to used cars. So to understand why prices are falling now, we have to go back to the pandemic. Remember the chip shortage? New car production ground to a halt, and suddenly everyone who needed a vehicle turned to the used market. That sent prices skyrocketing. Luna: Right, the classic supply-demand imbalance. New supply dried up, used demand spiked. Lucas: Exactly. And then you had stimulus checks and low interest rates adding more fuel. By 2022, the average used car price was up more than forty percent from pre-pandemic levels. Luna: Which is insane when you think about it. Cars that would normally depreciate were actually appreciating. Lucas: Right, a Toyota Camry became an asset class. But what's happened since is a gradual unwinding. Production has recovered, chip supply is back, and dealers are sitting on more inventory. On top of that, interest rates are high — the Fed has kept the federal funds rate elevated to fight inflation. Luna: And higher rates mean higher monthly payments, which pushes some buyers out of the market entirely. Lucas: Exactly. So demand softens at the same time supply recovers. That's the classic recipe for falling prices. But here's the thing — wages have kept growing, and the latest CPI data actually showed headline inflation ticking down. Core CPI is basically flat. Luna: So the purchasing power of the average worker is genuinely improving. You're earning more and the thing you want to buy costs less. Lucas: That's the story. And it's not just used cars. Look at the ten-year breakeven inflation rate — it's at two point two four percent. That's pretty much anchored near the Fed's target. So expectations are stable. Luna: But is this a broad trend across all categories, or is used cars a special case? Lucas: Good question. It's not universal. Services — things like rent, healthcare, education — those are still sticky. But goods inflation has really cooled. Used cars are actually leading the decline. Luna: So if you're in the market for a used car right now, the timing might be pretty good. Lucas: Cautiously yes. But you have to factor in the financing cost. Even though the price is lower, a car loan at seven or eight percent is a lot more expensive than it was two years ago. Luna: Right, the monthly payment math might still be tough. Let's walk through an example. Lucas: Sure. Suppose you're buying a twenty-seven-thousand-dollar used car. With a five-year loan at seven percent, your monthly payment is about five hundred and thirty-five dollars. Two years ago, the same car might have cost thirty-one thousand, but the rate was maybe four percent. That payment would be about five hundred and seventy dollars. Luna: So you're saving about thirty-five bucks a month. Not huge, but definitely not nothing. Lucas: Right. And if rates start to come down later this year — which some economists are now predicting — that math improves further. The Fed's next meeting is in September, and markets are pricing in a decent chance of a cut. Luna: But there's also the risk that if rates drop, demand picks up again and prices might stop falling. Lucas: Exactly. So there's a bit of a window here. The data we're seeing in July 2026 suggests that this might be the sweet spot — falling prices, rising wages, and rates that haven't yet come down enough to reignite demand. Luna: What about the broader economy? Are there any warning signs in the data? Lucas: Well, the stock market has been a bit shaky — the S&P 500 is down about eight-tenths of a percent over the last five days, and the NASDAQ is down one point four percent. That could signal some nervousness about growth. Luna: And we saw that headline about import prices from China hitting their highest since 2008. That could feed back into goods prices if it continues. Lucas: True. But for now, the core trend is positive for workers. Real wage growth — wages adjusted for inflation — has been positive for over a year. And that's what our series has been about: those moments where a raise finally catches up to a specific cost. Luna: And used cars is a big one. For a lot of people, a car is the second biggest purchase they'll ever make, after a house. Lucas: Exactly. So if you've been holding off on buying, the conditions are better now than they've been in years. Not perfect, but better. And that's worth paying attention to. Luna: Next time maybe we'll look at whether your raise is finally beating the cost of a home repair or something. Lucas: That's a good one. We'll add it to the list.