Looking to buy an affordable used car? The spiraling high prices may put you off from considering a pre-owned vehicle. However, don’t lose hope too soon, as things may look brighter just around the corner. If you’ve been wondering “When will used car prices drop?” – you’ll find the answer here.
The last two pandemic-ridden years have caused a domino effect on prices across the globe – and cars are no different! Supply chain issues, labor shortages, and delays in the production of new cars have put pressure on new car prices as well as used car prices. However, for people with a tight budget, the increase in used car prices has hit harder than normal.
What caused such a spike in prices, and can we expect respite anytime soon? We’ve broken down the possible trends in this post.
What Are Used Cars?
A used car – also called a pre-owned car or a secondhand car – is one that has had one or more owners in the recent past. The original owner may have used the car for a while and traded it in for a new vehicle. After a series of manufacturing and quality checks, the used car is listed by a dealership for a lower price. This makes them affordable for a large segment of budget-friendly customers.
Why Are Used Cars So Popular?
When you buy a new car, the value of the vehicle drops by almost 20% as soon as you drive it off the dealership. After the sharp drop in value, the vehicle depreciates much more slowly over the course of its life.
Some customers prefer not to invest in an asset that depreciates so suddenly. They would much rather someone else take the first depreciation hit and then buy a used car as a much more stable investment. Besides, used cars have lower insurance costs, need lower financing requirements, and are generally more reliable (if bought from a trusted dealership).
What Is the Current Average Price of Used Cars?
In December 2019, the average price of a used car was around $17,500. However, according to the US Bureau of Labor Statistics, the price had jumped to $29,000 in December 2021. That’s an increase of almost 65% in just two years!
On the other hand, prices of new cars have shot up to as high as $47,000, making them unaffordable to many prospective buyers.
Why Are Used Car Prices So High?
The increase in used car prices is a side-effect of the increase in new car prices caused by a shortage of semiconductor chips.
Semiconductor chips are an essential component of car systems like airbags, ABS, seatbelt safety tensioners, radios, touchscreens, and more. When the pandemic first started in 2020, the global supply of microchips fell sharply due to constant lockdowns and poor demand for new cars.
However, once things started opening up in 2021 and Americans started purchasing more, microchip manufacturers have been unable to keep pace with the increased demand for chips to be used in new cars. This, in turn, led to stalling of new vehicle production.
With new cars becoming more costly, the demand for affordable used cars also increased drastically, which led to the current high prices.
Are Used Car Prices Dropping?
According to the Mannheim Used Vehicle Value Index, the prices of used cars have been stabilizing slightly since an all-time high in December 2021. The latest analysis based on data from March 2022 shows a 3.3% dip in the prices of used cars. However, it is still 24% higher than a year ago, indicating a very slow return to pre-pandemic prices.
Experts agree that a sharp decline in prices is out of the question. Much of the global economy will still take more time to recover from the shortage of new vehicles.
When Will Used Car Prices Drop to Normal Levels?
If by ‘normal’ you mean 2019 levels, you may be disappointed.
According to a KPMG report released in December titled Will Used Car Prices Crash?, the coming months could still see an increase in used car prices. However, in the long run, it is likely that there will be a 30% market adjustment in the price of used vehicles until settling at a ‘new normal.‘
How long it will take to arrive at such a level depends on how well global supply chains can balance out the demand for new vehicles. If that happens in the next few months, we could see a decline in used car prices by the end of 2022.
Should I Wait to Buy a Used Car in 2022?
According to vehicle valuation service Kelly Blue Book (KBB), automobile prices are seeing a slight decline in prices owing to balancing out of global supply and demand. However, it’s best not to buy either a new or used car anytime soon, purely because the underlying factors that caused the price rise haven’t been sorted out yet.
- Global supply chains continue to face logistical problems like repeated COVID outbreaks in factories and the Russia-Ukraine war.
- The supply of semiconductor chips will likely regularize only by the end of 2022, thereby sustaining high vehicle prices
- There will also be increased demand for vehicles after the IRS issues tax refunds. Customers tend to delay purchases until they get their refunds, which could increase demand for both used and new vehicles.
- Gas prices continue to average above $4/ gallon, which could mean higher vehicle costs.
Long story short – try to wait it out until at least November or December before deciding to buy a new or used car.
What Time of the Year Are Used Car Prices the Lowest?
Typically, January, February, and December are the best months of the year to buy a used vehicle. There is more inventory with dealerships, that are looking to get rid of older models and make room for newer models.
How to Take Advantage of High Used Car Prices
If you own a second car or one that you aren’t using frequently, you can take advantage of these high prices by selling your used car for a premium. With secondhand car prices touching $30,000, you can still make a cool profit even if you can’t sell it immediately and wait for a few months.
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