“We've seen an unusual appreciation (of value) when consumers are buying these very expensive cars,” said Daniel Ross of Canadian Black Book about the car market during the pandemic years.
The global supply disruption caused by the pandemic has left the car market with low volume – and coupled with high consumer demand – car prices are rising, Ross said.
Some of those issues have since become commonplace, allowing rates to ease, but leaving some buyers owing more on their auto loan than the car is currently worth. It's called negative equity, or being underwater.
Like most cars, they are a depreciating asset, so for those who buy their cars when prices are high, “their car will continue to lose a lot of value because it was probably more expensive at the time,” Ross said.
Should you trade in your car for a cheaper one?
On average, people who were underwater saw the negative equity on their vehicles rise to a record high of USD$6,255 in the second quarter of this year, compared to USD$4,487 in the second quarter of 2022, a July report from car dealership Edmunds showed.
Negative equity trade also jumped, Edmunds said in their report.
“When you're in a bad tie, it's not easy to get out of that,” Ross said.
For drivers in this situation, it is better to drive the car down and continue paying the loan.
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