By Reagan Steele – Business & Economic Policy Writer

New data from Edmunds shows that American car buyers are facing the most severe negative-equity levels in years, and the pressure is likely to be felt across the Sacramento region, where slowing job growth and rising costs leave many households financially stretched.

According to Edmunds, 29.3 percent of trade-ins toward new-vehicle purchases were underwater in the fourth quarter of 2025, meaning the buyer owed more on their existing car than it was worth at trade-in. That figure is the highest recorded since early 2021. The average negative equity has climbed to an all-time high of $7,214, and more than a quarter of underwater trade-ins now involve $10,000 or more in debt carried into the next purchase.

The trend reflects several compounding forces: inflated prices during the pandemic-era supply shortages, higher interest rates, longer loan terms, and more buyers rolling debt forward instead of paying it down. Edmunds reports that 40.7 percent of underwater buyers are now financing new vehicles with 84-month loans, a sign that many consumers are prioritizing lower monthly payments over long-term equity.

While the data is national, the conditions that make buyers vulnerable are clearly visible in Sacramento’s current economic landscape.

Recent figures from the U.S. Bureau of Labor Statistics show that the region’s job market has slowed across multiple sectors. Construction employment has fallen sharply year over year, down 6.9 percent, while manufacturing, business services, and information sectors have also posted declines. Overall employment gains remain modest. Unemployment recently dipped to 5.0 percent, although the broader job picture reflects a cooling local economy.

These pressures intersect directly with the auto market. Sacramento is a car-dependent region with long commutes, limited transit coverage, and rising insurance and repair costs. For many households, replacing a vehicle is not optional, but buying into today’s market often means taking on larger loans at higher rates than they might have expected just a few years ago.

When those buyers return to the dealership before their loan balance has meaningfully declined, the financial gap can be steep. Edmunds notes that monthly payments for shoppers rolling negative equity into a new purchase have reached $916, compared to a national average of $772. Many buyers also end up financing more than $11,000 above what a typical new-vehicle customer borrows.

The result is a cycle that can be difficult to break. Elevated car prices, slow equity growth, rising borrowing costs, and a local economy that is not keeping pace with the financial demands placed on working families all reinforce one another.

For Sacramento-area consumers who are already underwater on a vehicle, analysts say the best protection is understanding the timing and real cost of a trade-in, and being cautious about extending already long loan terms. But with auto prices remaining high and household budgets tightening across the region, negative equity is likely to remain a growing challenge.

As the national data shows, once buyers fall behind the value curve, it becomes harder each year to climb back out.