Here's Why Car Prices are About to Drop Like a Stone

today I'm talking about something that's impacting every single American right now inflation and interest rates and when the U.S will enter a recession if you're thinking of buying a car now or in the near future what does this matter for car loans today I'll bust some myths about inflation interest rates and impending recession and whether it'll be worse than the market crash as of 2008 and 2020. first let's clarify something inflation and recession are two different things when prices are rising like we're seeing now that's inflation our cost of living becomes higher and it impacts our personal household finances when prices rise but your salary wage doesn't increase it basically means that each dollar you earn now buys you less and less over time obviously most people feel poor during an inflation the Federal Reserve is trying to combat inflation in fact that's why at least 23 or 34 central banks have already increased interest rates but how does Raising interest rates help curb inflation and yet how can it cause a recession High inflation is generally considered harmful but inflation isn't always necessarily A Bad Thing small inflation drives can help economic growth but a recession is the opposite the economy slows down an unemployment skyrockets at the moment we're experiencing inflation and we aren't in a recession at least not yet or at least not officially but all that may change and it could be sooner than you think because of what the the feds are doing with interest rates the inflation rate right now is around 8.6 percent to put that into perspective the Federal Reserve typically targets a two percent inflation rate based on the Consumer Price Index or CPI you can see the difference several weeks ago the Federal Reserve made an announcement That Shook forecasters to the court the central bank has really been struggling to re-ain control over soaring consumer prices inflation is higher than ever that's what prompted the Federal Reserve to announce an increase in interest rates but it was no small jump it was the largest interest rate hike in 28 years the last time there was a hike this high was back in 1994. in total the Federal Reserve raised their Benchmark interest rate by three quarters of a percentage point and it came just after a half Point jump the month before and a quarter point increased three months before that from June of last year to this year consumer prices have gone up whopping 8.6 percent just think not only are groceries and gasoline prices higher than ever but rent airfares and other important services are reaching new Peak prices but there's actually a purpose strategy to increase in the interest rate when interest rates are high loans become more expensive so consumers become less prone to borrow money sounds like a no-brainer the point is the feds use interest rates to control consumer demand the lower the consumer demand the less overwhelmed supplies will be and the less overwhelmed suppliers are then the price of products can fall but now I know what you're thinking how exactly does the Federal Reserve affect how much I pay to borrow money from the bank well here's an example anytime you get a loan from A bank an interest rate is attached to that loan and that's the price you pay to buy all the money Federal Reserve is America's Central Bank their primary role is to provide a safe and reliable Financial system for our country commercial Banks rely on them for some of the most critical banking needs and one of these critical needs is maintaining deposit accounts these are also known as Reserve accounts most American banks are required to keep a specific level of financial reserves on hand at all times and if avra Bank needs to borrow money to refill these reserves they can look to other banks that have Federal Reserve accounts that may have a surplus but when they take out the Sloan are also charged an interest rate that percentage is known as the federal funds rate and that is what the Federal Reserve helps determine did you know that stock markets also dropped in May and June this year due to fears that the Federal Reserve raising interest rates could even tip the economy over into a recession Federal Reserve officials project that the economy will only grow 1.7 percent this year that's a scary drop compared to the 2.8 percent growth rate they're predicting only three months before it's not over yet Federal Reserve policy makers have raised their forecast for unemployment next year from 3.5 percent to 3.9 percent and mortgage rates will also rise today the average rate on the 30-year fixed home is around six percent that's double what it was last year so get ready because we're seeing some of the highest mortgage rates that we've seen in many many years the world is so intertwined right now that's why Global events impact pretty much every country the ongoing conflict in Eastern Europe means massive Surge and prices of crude oil and other Commodities that seriously increasing prices for gasoline and food and therefore impacts inflation Federal Reserve policy makers interest rates declined to around 3.4 percent by the end of 2022 to put that in perspective five months earlier they had initially predicted 1.9 so between now and the end of the year who knows if it'll continue to grow even higher interest rates and inflation tend to move in the same direction just with legs that's because policy makers need data to estimate future inflation Trends and the interest rates they set take time to affect the economy completely higher rates could bring Rising inflation under control but slowing down economic growth can often lower the inflation rate and that could even prompt interest rate cuts too so let's talk more about recession unfortunately for us recessions have been all too common in the 21st century two of the largest most recent recessions happened back in 2020 and 2008 and they can lead to teach us a lot about what to expect from future recessions here's what I mean a recession is a significant decline in economic activity across the economy usually it lasts more than a few months and this significant decline almost always happens over two quarters what is that mean for you and me well we won't attack you know for sure if we're in a recession until the GDP figure comes out the second quarter that ends in June GDP for one point four percent the first quarter of 2022. compare that the 6.9 jump in the last quarter 2021. and you can see why analysts are worried until the second quarter figures are officially released we could already be in the middle of a recession and we wouldn't even know some analysts believe that the U.S has a 40 chance of entering the recession next year if you couple that with a fact that we'll see more interest rate spikes than a months to come then you'll think the odds of entering a recession will be even higher but even if a recession hits sooner than next year many economists believe it probably won't be as bad as the market crashes back in 2008 and 2020. some people may lose their job the unemployment rate isn't forecasted to go up too high did you know that just this past May the U.S economy added 390 000 jobs this surpassed expectations and it boosted hopes that our strong economy might be able to weather a mild recession a mild recession with low unemployment would spermal most workers from being laid off entirely the milder the recession the better the last time consumer prices are climbing this quickly here in the U.S was back in 1982 but today our economy is in a very different place unlike President Biden President Johnson and Nixon really turned up the heat on the Federal Reserve to hold back from taking any economy slowing measures that might reduce inflation they did this because they were afraid of blowback from the electorate but today the Federal Reserve is in a much more independent institution and they have a much better understanding of how inflation works and what they can do to control it the 2008 recession was fueled by a housing bubble collapse and the 2020 recession was fueled by the pandemic but any upcoming recessions outcomes remain entirely within the control of the federal reserve's policy now this doesn't mean that you shouldn't be prepared for an eventual recession it's a matter of when not if in the past four decades a recession has occurred nearly 60 percent of the time when the Federal Reserve increased interest rates there are many 40 percent of the time a recession occurred due to other factors like the pandemic the Federal Reserves aggressive of actions and raising interest rates were expected to lower the value for stocks bonds and cryptocurrencies in addition to slowing down consumer demand but we're not just talking about recession in the U.S but a global recession now here's what you got to understand recessions are a natural part of any economy's cyclical nature you know what they say what goes up must come down in economic recession is like a balloon that begins to deflate but it's always possible to reinflate recessions can hit suddenly or an economy can slowly ease into one literally anything that suddenly shocks an economy can push it into a recession a recession could last for months but it rarely lasts for years and as soon as it's over the interest rates that may have fallen at the beginning of recession may start to increase again did you know that some democratic politicians have accused corporations with concentrated Market power of greed inflation greed inflation is a new term meaning that they increase their prices Way Beyond the level needed to keep their profit margins from a roadie if a recession does end up hitting us sooner than later consumers should re-evaluate their priorities especially when it comes to what we buy here are a few things you shouldn't buy during research don't buy any name brand products food is an easier spot to make the switch there are lots of great tasting generic and store brand options available the markup on brand names can be astronomical today you should also scale back on pricey labels especially when it comes to children's clothing you can find a ton of very affordable kids clothing at stores like Walmart or even on sales at stores like Old Navy look kids grow very fast they grow out of their clothes before they can even say recession if necessary an even better option maybe to shop at secondhand thrift store also don't buy a new phone true staying connected in today's modern world is more important than ever but let's be honest here your old phone can probably handle calls and video chats just as well as the latest and greatest new model just came out shelling out 1200 bucks for a new smartphone is just not a smart money move during a recession signing on a bit longer to your old phone and put the money you save into an emergency fund instead so what about car loans well if you live on credit unless to be real most Americans do like half of the population well then higher interest rates mean it'll be more expensive carry a credit card balance or to buy a house and it's the same for financing a car when you're shopping for a home adding one percent of the interest rate can decrease your buying power up to 11 not many people know this so let's say you're a buyer qualified for a 500 000 loan when the interest rates were three percent when mortgage rates climb to four percent you could see your pre-approval fall below 450 000. well that same interest rate increase will also hit you higher than the wallet when it comes to financing a new or used car according to one risk management firm that could be as high as eight interest rate hikes between this year let's put that into perspective when this year started the average new vehicle would cost you over forty seven thousand bucks if you took out a 72 month loan with a two thousand dollar payment a five percent interest rate you'd be making monthly payments that's 725 but a one percent increase in the interest rate would boost this by Twenty One dollars a month that equates to more than fifteen hundred bucks over the course of the loan if that rate increased from five to ten percent annually your new monthly car payments would be over ten thousand dollars a year but it's not all bad news higher rates could end up being a good thing if you're on the lookout for a new car specially if causes demand to balance back out with Supply automakers and car dealers might be hesitant to see rates go much higher because that would happen they would be in effect chasing away customers and these factors could mean that 2022 vehicle prices may come down finally even though the rates are going up but now you tell me when do you think the recession will hit and how bad do you think it'll be are you in the market for a new car right now if so are you going to wait it out our nose dive in today's prices please share by commenting below if you like 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Channel: Scotty Kilmer

Views: 343,290

Keywords: auto, auto repair, car, car diy, car repair, cars, diy, how to, mechanic, repair, scotty kilmer, car review, car advice, car maker, car makers, here's why, gm, dodge, chrysler, cheap, cheap car, cheap cars to buy, cheap cars, the best time to buy a car, should I buy a car now, buying a car, best times to buy a car, buying cars, saving big, how to save when buying a car, buy car, buying a new car, used car, used cars, used car prices, used, new car, car prices, car price

Id: 6rnb381bDjY

Length: 11min 5sec (665 seconds)

Published: Fri Aug 12 2022