The Bank of Canada has lowered interest rates for the second time in as many months, which is good news for Canadians looking to buy a new vehicle.
The institution lowered interest rates another 25 basis points, which effectively lowers vehicle buyers’ monthly payments. Together with June’s 0.25 per cent drop, the move is another signal to Canadians that the worst of pandemic inflation is behind them.
That’s good news for car buyers, who are still dealing with historically high monthly payments. AutoTrader’s Price Index for Q2 2024 reveals that Canadians were paying an average of around 34 per cent more per month in June than they were before the pandemic. However, the good news is that the figure has been falling in the first half of the year, and with these interest rate drops, looks set to continue dropping in the second half of the year.
“We expect to see further declines in monthly payments in the short- to mid-term,” said Baris Akyurek, AutoTrader’s vice president of Insights and Intelligence.
In addition, Canadian car buyers are being helped by falling used car prices. Although new car prices have been stable in 2024, the average price paid for a second-hand vehicle has dropped by more than 8 per cent over the last 12 months, prompting more Canadians to consider buying.
“After two consecutive waves of declining vehicle purchase intentions, the latest wave of our research shows a slight uptick in consideration levels,” wrote Akyurek. “This renewed optimism appears to be linked to the increased confidence amongst Canadians in the current economy spurring a rise in their intention to make major purchases.”
Among used vehicles, prices for trucks, cars, and SUVs dropped the most (by around 5, 6 and 10 per cent, respectively) in June. On the other hand, prices for used minivans barely fell at all, shrinking just 0.8 per cent, as compared to June 2023, and growing 6.1 percent, as compared to May 2024.
In terms of new vehicles, prices were stable for SUVs and trucks last month, but they grew significantly for cars and minivans. Akyurek explains that a weaker economy is pushing consumers to look for more affordable vehicles, compact cars and sedans, and that automakers have overproduced trucks and SUVs, pushing their prices down. The growth of electric and hybrid vehicles has also driven the price of these vehicles up.
That hints at why consumers should be excited about these interest rate drops, but shouldn’t expect a return to pre-pandemic vehicle prices. According to Akyurek, a growing preference for large vehicles, electric powertrains, and sustained inflation mean that prices will always feel high when compared to 2019.
