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For Middle-Class Shoppers, New Cars Are Moving out of Reach

For Middle-Class Shoppers, New Cars Are Moving out of Reach
for middle-class shoppers, new cars are moving out of reach
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  • average new-vehicle prices are going up, but not incomes.
  • to make do, more people are taking out longer and longer loans.
  • good news, if you want to buy new: our list of the 10 cheapest new cars of 2019 includes plenty of modest hatchbacks and sedans that start under $17,000.

    it's getting tougher to buy all of those nice cars you see in the tv ads. with vehicle prices constantly climbing, this shouldn't be a big surprise. but according to cbs news, some middle-class families are getting priced out of the new-car market altogether.

    car prices rising, income isn't

    let's start with some numbers. first up, the cars themselves. the average price for a new car in the u.s was around $35,000 last year, and, according to experian automotive, the average new-car loan was $32,119 in the second quarter of 2019. new cars or trucks cost around 38 percent more today than they did 10 years ago, with the transaction price for some popular suvs and trucks more like 60 or 70 percent higher than in 2009. compare that to the change in real median household incomes in the past decade, which went from around $59,000 in 2009 to $62,000 in 2018. in other words, not a 60 or 70 percent increase, or even 38 percent.

    monthly payments too high

    second, financial experts say that a reasonable amount to spend on a vehicle is 10 to 15 percent of your monthly income, according to cbs news. the exact definition of what constitutes a "middle class" household in the u.s. is not set in stone anywhere, but the minimum income level for a family of four to be considered middle class, according to pew research, is $52,187. it's just $36,902 for a couple. whatever the precise number is, a monthly payment of roughly $400 would be acceptable to a middle-class shopper looking to buy a new car. but as the auto-loan calculator shows, to get a monthly payment in the $400 range at 4 percent interest, that $32,000 car loan would have to last for 84 months—seven years.

    more people are leasing

    that brings us to the third set of numbers, having to do with leases. turns out, the length of leases has also grown dramatically in the recent past to accommodate the higher purchase price of vehicles. as a way to reduce the monthly cost of buying a new car, some people are signing up for leases that can stretch to six or eight years, with the average growing to 60 months nowadays. lower payments over a longer time may seem like a good idea at first, but cbs news spoke with a seller of repossessed vehicles, who said his business has at least doubled recently because longer loans on more expensive vehicles can more easily lead to defaults. this shouldn't come as a surprise, since, as we reported recently, almost half of americans are more likely to research what tv show to watch than to learn more about financing options for an auto loan.

    all of this doesn't mean that every new car is out of range for middle-class families. our list of the 10 cheapest new cars of 2019 includes plenty of modest hatchbacks and sedans that start under $17,000. and of course, used cars remain a popular and reasonable alternative. the average age of light-duty vehicles in the united states keeps going up, which means used vehicles are lasting longer. and the overall number of new vehicles sold in the u.s. has remained relatively steady for the past few years, at just over 17 million annually, so expect the supply of used vehicles to continue apace.