We have all seen an increase in gas prices. Local pumps have been left astray. People are avoiding driving at all costs. It’s an expensive world we currently live in. Everything has found a way to inflate, and cars are no different. Used car prices continue to expand as if it is being pumped full of helium. Will it ever stop?
Unfortunately, there seems to be no needle in sight. No sharp-edged tool to prick away the overinflated value of four wheels and an engine. The air continues to build, and our pockets continue to deflate.
According to a Bloomberg study, U.S. used-car prices surged 41% year-over-year, while new car prices jumped 12% in February. Simply put, used car prices continue to increase.
But is there an end in sight? Or will it continue to be a seller’s market?
Let’s look into it.
Why Are Used Car Prices Rising?
When trying to hypothesize the potential drop in used car prices, it’s critical to look at why they were rising originally.
Let’s point fingers at the most finger-pointable thing. The prices of cars are rising because of the COVID-19 pandemic. Are you surprised?
Basically, supply-chain issues, chip shortages and increased demands due to pandemic-related activities are the major causes of car-price inflation. In fact, they are the major causes of most price increases. COVID has done more than cause millions of sick people. Its umbrella-like effects may change the outlook of everything for the next few years.
Ultimately, it is difficult for companies to produce new cars, increasing the selling price. With the overall rise in prices on everything, private sellers are also looking to generate more income, raising their asking price for their used vehicles. Buyers are paying higher prices because it is the only option. It’s a vicious cycle, and it’s going to be challenging to break.
Will Used Car Prices Drop?
With vaccinations rolling and mandates dropping, it seems as if the country is finally able to take a deep breath. Does this mean the ever-increasing price of cars will take a breath, too? Certainly seems that way.
Labor and shipping continue to get back to normal rates, though gradually. If supply-chain shipping of raw materials becomes efficient and factory labor rates return to normal, the price of new cars should begin to drop. Correspondingly, this will drop the price of used cars.
This is all hearsay, though. We can speak in hypotheticals, but is anything actually happening?
David Paris, senior manager of market insights at J.D. Power, told CNN “From everything we are looking at, once production is back online in the later half of the year, we should see inventories start to build again.”
But once again, this is a projection. We cannot be certain that these inventory improvements are on their way. Who knows when the pandemic will strike again, putting everything back under siege.
Statistics show that the increase in used-car prices is beginning to slow down, and with projections of increased supply, they should drop by the end of the year. Unfortunately, things will not return to pre-pandemic prices. Jonathan Smoke, chief economist at Cox Automotive, noted that in 25 years, we have never seen a price decline above 13% within a year.
Therefore, if prices drop exponentially, they will still stay above 2019 prices. About 10% more, to be exact.
To make it simple. Used car prices will decrease, but they won’t reach the prices they were before COVID.
Is it Time to Sell?
If you are in the market to sell your used car, you are in the right place at the right time.
Look at it this way. As prices decrease slightly (like they are now), demand will increase. It’s simple economics, though ultimately depressing for buyers.
When prices drop, buyers see the new prices as a good deal, even if they are nowhere near as low as a few years ago. Once you set a new bar, people tend to forget about the previous bar, making limbo an easier process. People don’t realize that going below this new standard would be breaking their back in 2019.
Antiquated analogy aside, yes, it’s the best time to sell your car.
As an online car-selling service, we have a keen eye on the market at Sell My Car Colorado. If you are looking to sell your used car (or any used vehicle, for that matter), then now would be the time.
You may not see a significant drop in profit if you wait till later this year. But the margin is currently at the highest it will be. The market seems to be at a peak and will decline, if only slightly, from here forward.
Time for a shameless plug. If you are looking to sell your used vehicle but don’t want to go through the hassle of dealing with shady dealerships or private buyers, contact us. As an online car buyer, we can offer you $100 more than the competition.
Also, we will come to you. You can sell your car from the comfort of your home or office.
Is it Time to Buy?
This question is a bit tougher. As stated, used car prices will decrease in the coming months, but not by a significant margin.
Sure, the coming decrease may be enough to force a seller to part with their car, but should it force buyers to bite on deals? Probably.
Ultimately it depends on what the buyer is looking for. The supply-chain crisis of 2020 and 2021 caused vehicle manufacturers to turn their attention towards vehicles of higher demand. Therefore, manufacturing was switched to trucks and SUVs.
According to Cars.com, the average median price for hatchbacks and sedans increased 40%-52%, depending on the model. While truck averages only increased 23%-48% and SUVs by 32%-41%.
Too many numbers? Put it this way; if you are looking to buy a truck or SUV, don’t expect to see too much of a decrease this year. You would be fine to purchase one at any time.
If you are attempting to buy a car and are looking for the best value window, waiting until the end of 2022 or the beginning of 2023 will be your best choice.
In the long run, inflation doesn’t look to be on its way down. From gas to produce, the shockwave effect of the pandemic is going to be scouring our economy for quite some time. Yes, the price of used vehicles will drop as the production of new vehicles rises, but it won’t be anywhere near what it was pre-pandemic.
But, this is the grand scheme of life. These are the ebbs and flows of economics. If you are going to sell your used car, do so sooner than later for maximum value. If you are going to buy a used car, you will be alright to wait a bit, but it might not change much.
At the end of the day, these numbers are all fractional. Do not bank on seeing a significant change in the car market this year.
Looking to Sell or Buy a Used Car?
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