's up you guys. It's graham here so we have to talk about the the car market bubble. Because even though you probably thought that 2022 couldn't possibly any worse. It was found that car repo's are exploding that's a bad omen see for the last few years.

The price of automobiles has been skyrocketing from a combination of excess demand a shortage of parts and loose lending requirements. That's resulted in a used car becoming the best performing asset of the entire year. But now there's brand new data. Which suggests the entire industry is about to be turned even further upside down with delinquency rates.

Reaching as high as 23 and automobiles across all segments. Seeing a week over week decline in fact the entire situation is so severe. That doug demiro addressed this publicly in his instagram and warned about the potential impact. This is going to have on the entire market both for buyers and sellers.

So let's talk about what's going on what this means for the entire market when and how much prices could fall and then finally what you could do about this to not lose money since uh that's kind of like making money if you don't lose it right. Oh. And also i want to give a huge shout out and give a lot of credit to the youtube channel your advocate alliance. They're a father son duo who pulls some incredibly detailed research that i couldn't possibly have found on my own so i'll link to them in the description for anyone who wants to check them out along with lucky lopez.

Who also provides some really great insights into the inner workings of the auto industry. So thank you guys so much and also big thank you to experian for sponsoring this video. But more on that later all right now as a quick background. If you're wondering what's going on.

And why the entire market just pulled the complete 180 let me bring you up to speed see when most people think about car prices they would imagine a chart like this in a normal market. A new car would be expected to lose anywhere from 9. To 11 of its value the moment you drive it off the lot and from there prices continued to fall by an additional 10 to 20 percent a year until after five years of ownership. You'd be left with about 40 percent of the price that you paid well 2020.

Completely messed that up because of a shortage of auto manufacturing. A limited supply of parts record low interest rates and a surge of demand car prices began to define the odds of gravity by going up in price year over year used car prices have increased by 22 percent outperforming the stock market real estate. Precious metals luxury watches collectible art legos fine wine basically whatever you have sitting in your parking space has become the most in demand item since the invention of sliced bread. But i think it goes without saying used car prices cannot stay this high forever.

After all. When you look at other pandemic related. Shortages. Lumber has already fallen back down to 2018 prices copper.

Just declined. 30 shipping container costs are normalizing and across the board. We're slowly beginning to come back to an economy. That isn't completely flush with money.

Except with one slightly massive problem as i've mentioned before it was found that 85 of all new cars are financed and that the auto loan market is ballooned to a one and a half trillion dollar industry in fact in the last decade. The amount of auto loan related debt has increased by over 75. But that is just the tip of the iceberg. An iowa law review found that contrary to popular belief over the last 10 years car dealerships have begun making more profits in the financing of cars.

Rather than the car sale itself. And that transitioning from auto sales to loan sales has resulted in a loosely regulated gray market industry. That was only a matter of time until it collapsed. How can they let this happen you might ask well i did some digging and was extremely surprised to find out that dealerships have successfully lobbied at state level.

For less oversight. Meaning. There is no federal oversight on auto loans unlike you have with mortgages student loans. Credit cards and even payday loans as a result all auto loans are passed through non uniform state motor vehicle retail installment sales laws and with very little framework to abide by auto loans could be given to practically anyone who asks no seriously a few weeks ago.

I learned that a jalopnik investigation in late 2021 found that between 25 and 50 of loans were given to customers who might not be able to afford them and lenders. Rarely verified the income and employment to borrowers to make sure that they could actually afford the loan in fact if the loans. The consumer reports looked at these verifications happen just four percent of the time now if you're watching this thinking. No way they have to be checking more than that right wrong.

Because the answer lies in the way that cars are currently being financed a professor of law at georgetown university. Warned the potential auto loan abuse in 2018 when he described the vast part of the entire industry as fast and usurious in that paper. He mentions that when it comes to auto financing. There are generally two options.

One is direct lending. Where the customer gets pre approved for a loan that is entirely separate from the car purchase and the second is an indirect loan where the customer applies for a line of credit through the dealer of which happens to be between 80 to 90 percent of the time now. In that second scenario dealers are allowed to pull your credit application send them out to sometimes dozens of smaller lenders to bid on and then they can compile the best offers in terms of what's called the minimum interest rate by doing this the dealership is allowed to see the lowest they could go from which could then be marked up at the dealer's discretion without the customer even knowing so obviously i'm simplifying the entire process for the sake of making a youtube video. But guess which tends to be the most profitable that's right indirect subprime loans under the current law dealers are allowed to keep a portion or all of the interest rate.

Markup as long as the buyer makes the payments for the first three to six months and over the last few years subprime borrowing has seen a major comeback. Sometimes with interest rates as high as 20 percent and oh wait it gets even better. And by better. I mean worse because bloomberg noted that as many as one in five auto loan borrowers admitted in a survey that their applications for debt contained inaccuracies that basically implies that not only are lenders.

And dealers. Turning a blind eye to income and employment verification for the sake of issuing a loan but 20 of their customers are also lying about their financials for the sake of being able to drive off in a new car. One user on reddit's super stonk even called it an infinite money glitch while lenders issue overpriced loans repossess the car when the buyer can't pay it and then resell the car again at a markup while prices are high to start the cycle over again. It's kind of genius actually.

Although like i mentioned before this type of market can't last indefinitely. And it's beginning to show some signs of a complete meltdown that's why it's more important than ever to make sure you have the proper insurance coverage on the car you drive especially when you might be overpaying without even realizing it but thankfully. Our sponsor experian is there to help they offer a price comparison tool that allows you to submit your information. And from there.

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However. Today that number has jumped substantially in fact you're probably going to want to hear this because i couldn't even believe it the state with the lowest default rate. Was utah with four and a half percent of all auto loans more than 30 days late. But that's the.

Best because you also have states like california with an 87. Percent default. Rate texas has a 10 default rate and washington dc has a 234 default rate. Where nearly one in every four borrowers is behind once a payment is more than 90 days late generally.

This is the point that a lender will begin to repossess your car and with more and more borrowers falling behind along with higher gas prices and rising interest rates. We're beginning to see that used car demand slowing down as mentioned by your advocate alliance. Every single car segment is down in price with new luxury. Cars seeing a 034.

Decline week over week multiply that over a year and if things continue with the same trajectory. We could be due for an 18 decline. This is something that doug demiro even addressed as someone who runs the popular car auction website. Cars and bids for some reason i read this all in doug's voice.

But he goes on to say i've been setting many of the reserve prices in the last few weeks. It's been interesting as the market is finally slowing down from the peak and many sellers aren't ready to accept it based on our recent sales. The car market is still stronger than it was in the old days. But it's absolutely dropped from its peak and that's where we start going into the biggest issue.

Remember those lenders i talked about well because of the loosening state regulated financial requirements auto loans are getting longer and longer with experian noting the number of car loans of 72 months or more is the highest it's ever been on top of that some lenders are willing to finance more than 125 percent of the car's value to include for higher prices sales tax registration licensing fees and so on and when a car is financed at the top of the market from which prices are beginning to soften. It's easy to see just how quickly a buyer could be underwater on their loan. And when that starts to spread throughout the rest of the market. All of a sudden it becomes the bank's problem.

As yaa explains once a bank repossesses. A car. They're usually only able to recoup about 70 percent of that car's value at wholesale auction. So when they're lending 25 000.

On an overpriced 20 000. Car that's now worth 15 000. While it sells for 11 000. At auction the end result is a massive loss to the investor.

When the original buyer is inevitably unable to pay all of that is to suggest that in the event of a severe recession. Where we see continued unemployment and ongoing inflation. Borrowers will absolutely begin to fall behind at a faster. And faster pace.

Leading to lower and lower prices and eventually strict regulation across the entire auto loan industry. Which frankly is probably past due now in terms of the good news depending on which way you look at it some new cars are actually beginning to still defy the odds and continue getting more expensive with the average price of a new vehicle increasing to 48 thousand. Dollars fecal inventory is also still stuck at 11. Million units meaning.

That demand is still matching supply and with shortages. Still plaguing. The entire industry prices are not falling as fast as they would have otherwise so in terms of my overall thoughts. It's pretty simple if you have a car and can no longer afford the payments or if you're worried about losing your job and falling behind.

Now is still a good time to sell and get yourself into something that costs less of course. If you can't sell because you owe more on the car than what it's worth it becomes trickier. But most likely if you could make the payments. The longer you hold onto the car for the more you could pay down the loan until eventually it balances out the thing is unlike investments.

Most people are not out there speculating on used car values and they simply need something that drives them from point a to b so it's never something that i would suggest sell your car. Here and then bicycle the work and then wait and then buy it back down here for 40 less chances are it's not even worth it for like 98 of the population and if you have a car that runs and drives it's probably best to keep on driving it but if you're in a position. Where you've locked yourself into an unaffordable loan and can get out of it now would be a good opportunity to do so and for anyone who wants more information. I will link to a lot of great resources down below in the description.

So you can see way more information beyond. What i'm able to cover here. So with that said guys. Thank you so much for watching also feel free to add me on instagram and don't forget to get your free stock down below.

In the description. When you sign up for public. Using the code gram. Because that could be worth all the way up to a thousand dollars and also you can get all the way up to a hundred dollars with a free crypto.

When you sign up for ftx us. Also down below in the description with the same code graham you may as well do it enjoy let me know what you get thank you so much for watching and until next time.