When Will Used Car Prices Drop?

The used cars for sale at your local dealer skyrocketed in price last summer, and we’re still waiting for these prices to come back down. If you’re wondering whether or not we’ll ever see the pre-pandemic pricing of used vehicles, that’s highly unlikely. As unpredictable as the pandemic was, the used car market was heading toward an over-saturated position with the massive number of new car sales leading up to 2018, but the supply chain issues caused by the pandemic changed that quickly. Today, some dealers are almost begging for consumers to trade in their vehicles for a new one, so that they can fill their used lots.

The Auto Market is Still Short of New Cars

Some dealers are experiencing unprecedented inventory shortages, while others have a hard time selling what’s at their location. Nearly all automakers see dealers without enough cars or inventory flow to keep up with the demand for new vehicles. As production ramps up, supply chain issues lessen, and new cars make it to the market, the prices of used cars should fall. Currently, we see many prices leveled off, with some falling a little, but the average car is still 22 percent higher than they were at this same time last year.

We Haven’t Hit the Year-Over-Year Mark of the Used Car Price Spike Yet

In 2021, the used cars for sale at dealers around the country experienced a massive spike in prices for July. As we make our way through one of the hottest summer months, we’ll have a much better idea of where the prices are compared to a year ago. Of course, if you’re expecting the prices to decline to pre-pandemic levels, you may never see that again. As some of the most recent models become used cars, the higher prices of new cars will translate to a higher price for used models as well.

Are Pre-Owned Car Prices in Decline?

How good of you to notice; yes, they are. In fact, we’ve had three consecutive months with prices of pre-owned models dropping. Unfortunately, that decline isn’t anywhere near the incredibly fast increase in prices for these vehicles that we saw only a year ago. It’s similar to taking five steps forward and only half a step backward. Currently, the average price of a used vehicle is $27,246, which is a historical high that won’t be historical once we pass that one-year mark.

Is the Supply Chain Still Causing Higher Prices?

Yes, it is. We are in a simple supply and demand constraint. If the demand for something is much greater than the supply, sellers can require a higher price. We’ve seen this phenomenon play out in many industries. The housing market has been booming as a seller’s market, with some homes receiving offers of $100,000 or more over asking and multiple offers to choose from on the table. This, too, will level off as interest rates increase and supplies return to normal.
In the auto industry, a large part of the accordion effect that created the increase of used cars for sale has to do with the semiconductor chips used in vehicles. For most products, simply ramping up production is easy. Machines can often stamp out parts quickly and only need to have more shifts of people running them to reach full capacity. Unfortunately, semiconductor chips take months to produce, and once one part of the process is at full capacity, the next step can’t be started until the first is complete. Only more production plants making these chips can solve this problem, and those plants take time to build.

Let’s Answer the Initial Question

The title question of when used car prices will drop is a tricky one. In a perfect world, which we don’t have, prices are predicted to fall by the end of 2022 and continue to drop into 2023. This doesn’t mean we’ll suddenly see a massive inventory of used cars to cause this decline, but the new car market is expected to finally be closing in on refilling inventory at dealerships that will operate at full capacity. If you’re looking for an idea of what used car prices should be going forward as a new normal, this could be when that takes place.

Things Could Change in the Used Car Market in a Hurry

As mentioned, the drop in the prices of used cars for sale is a prediction based on everything running smoothly. The reasons for the semiconductor shortage could crop up and be a problem once again. We’re not referring to the pandemic and the sudden rise in sales of gaming systems but the fire, natural disaster, and strike that took place at three of the largest semiconductor factories in the world. These events were crippling to an already injured supply chain.

Part of the Price is Inflation

Inflation happens regularly, and we’re see it in all areas of our lives. Yes, the increased price of fuel does impact our grocery prices, but so does inflation. Right now, inflation is at a 40-year high, and car prices increase based on this factor as well. Unfortunately, most people will tell you their salary doesn’t keep up with inflation. Is it possible that new car prices will reach a point where the average American cannot afford to buy a new car? If so, this could add to the lack of supply in the used car market and keep prices higher than they should be.

There’s a Lot to Think About with Used Car Prices

Are you looking for one of the used cars for sale, but you don’t know what the best time to buy will be? Join the club; it’s hard to predict exactly when the market will finally “normalize,” and you’ll be able to buy the car you want at the right price. For now, our best guess is that you should wait until the end of this year or the beginning of 2023. Of course, if you can’t wait that long, you might be stuck buying a used car for much more than you want to pay.

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