Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / How Your Raise Is Finally Beating the Cost of a New Car
Transcript
- Lucas: If you've been window shopping for a new car lately — maybe you've noticed something strange. The price on the sticker isn't quite as shocking as it was a couple years ago. Luna: I have actually noticed that. My neighbor just leased a Honda cr v and she said the dealer was actually discounting below MSRP. That felt like a time warp. Lucas: It's not a time warp, it's the data. Average new car transaction prices peaked around 2023 — near $49,000 — and they've been flat or slightly declining since. Meanwhile, wages have kept climbing. Luna: So the gap is closing. How much exactly? Lucas: Let's look at the May 2026 numbers. Average hourly earnings for private workers hit $37.50, up from $37.41 the month before. That's about a 2.5 percent annualized gain. New car prices, on the other hand, are up maybe 1 percent year-over-year. Luna: So wages are growing two and a half times faster than car prices. That's a meaningful shift from 2021 or 2022, when car prices were spiking 10, 12 percent and wages were barely keeping up. Lucas: Exactly. And it's not just average hourly earnings. Median usual weekly earnings — that's a broader measure — hit $1,204 in early 2025, up from $1,159 the year before. That's almost a 4 percent gain. So for the typical worker, take-home is rising faster than the cost of a new car. Luna: But let's be real — car prices are still high. The average transaction price is still north of $48,000. That's not cheap. Lucas: No argument there. But affordability isn't just about the sticker price. It's about how many weeks of work it takes to buy the car. If your weekly earnings are $1,204 and the average car costs $48,000, that's about 40 weeks of pretax income. Luna: In 2022, when the average car was $47,000 and median weekly earnings were around $1,100, that was closer to 43 weeks. So you've saved three weeks of labor. Lucas: That's real progress. And it's not just wages catching up — the car market itself has normalized. Inventory is back. Dealers aren't marking up $10,000 over MSRP like they were during the chip shortage. Luna: Right, the supply chain issues are mostly resolved. But there's a new headwind: financing rates. The Fed hasn't cut rates yet in 2026, and auto loan rates are still around 7 to 8 percent for new cars. Lucas: That's the counterpoint. Higher rates eat into the wage gains. If you're financing $40,000 over 60 months, a 7 percent rate versus 5 percent costs you about $2,000 more in interest over the loan. Luna: So the monthly payment might not feel much lower even if the purchase price is flat. That's why the headline numbers — wages up, car prices flat — don't always translate to consumer sentiment. Lucas: Fair. And that brings us to the May inflation data we got this week. Core inflation hit 3.4 percent, the highest since October 2023. So while car prices aren't skyrocketing, other costs are still rising. Luna: Which means the raise you got might feel like it's being spread thinner across everything — rent, groceries, insurance. Car insurance alone is up double digits over the past year. Lucas: We did a whole episode on that, episode 70 I think. But the point is: for the specific category of new cars, wages are winning. If you've been waiting for the market to turn in your favor, this is the best moment since before the pandemic. Luna: I think that's worth pausing on. There's a tendency to look at the economy and say everything is terrible. But here's a concrete category where the trend is genuinely positive for workers. Lucas: And that kind of concrete insight — knowing the actual numbers — is exactly why we do this show without ads. We want you to have the data, not be sold to. If walking through the economy with us has made something click, you can support that mission at buy me a coffee dot com slash fexingo. Luna: Totally. It keeps us independent and lets us focus on what matters: the numbers that affect your wallet. So yeah, no ads, just economics. Lucas: Back to cars. One interesting angle is which segments are seeing the biggest wage advantage. Compact cars and sedans — think Honda Civic, Toyota Corolla — those have barely gone up in price. They're around $25,000 to $28,000. Luna: So for a median earner, that's about 21 weeks of work. In 2022, it was more like 24 weeks. That's a meaningful difference if you're shopping in that segment. Lucas: Exactly. And trucks and SUVs — the big money makers — those have actually come down a bit from their peaks. The Ford F-150 averaged around $58,000 last year; this year it's closer to $56,000. Luna: Still expensive, but heading in the right direction. What about electric vehicles? There's been a price war there. Lucas: EVs are a whole different story. Tesla cut prices multiple times in 2024 and 2025, and other manufacturers followed. The average EV transaction price is now around $55,000, down from $65,000 two years ago. Luna: That's a 15 percent drop. Meanwhile wages are up maybe 5 percent over that period. So for EVs, the advantage is even bigger. Lucas: But you also have to factor in the $7,500 federal tax credit, which is still available for many models. That brings the effective price down further. Luna: So if you're in the market for a new car, especially an EV, the combination of lower prices and higher wages makes this a relatively good time. But I want to push back a little — not everyone buys new cars. Most people buy used. Lucas: Great point. The used car market is different. Used car prices have been stubbornly high because there were fewer new cars sold during the pandemic, so the supply of 3-to-5-year-old cars is tight. Luna: Right. So the wage advantage might not apply as much if you're shopping used. The average used car is still around $28,000, which is about 23 weeks of median earnings. That's actually worse than pre-pandemic. Lucas: But even there, the trend is improving. Wholesale used car prices have been declining since 2023, and that eventually flows to retail. So the used market should get more affordable over the next year. Luna: That's the hope. And if wage growth continues at this pace — say 3 to 4 percent annually — while car prices stay flat or rise 1 percent, the gap will keep widening. Lucas: The big wildcard is the economy. If we hit a recession, wage growth could stall, and car prices could drop. But that's a different scenario. For now, the data says: your raise is finally beating the cost of a new car. Luna: I'd add a caveat: it's beating the purchase price, but not necessarily the total cost of ownership. Insurance, maintenance, fuel — those are all up. Lucas: That's a whole other episode. But for today, the headline is clear. New cars are more affordable relative to wages than they've been in years. If you've been waiting for the right moment, the numbers say it might be now. Luna: Just make sure you factor in the interest rate. And negotiate. Dealers are ready to deal. Lucas: Good advice. Next time, we'll look at a category where wages are still losing ground. There are plenty of those too.