Experts predict that used car prices could fall by as much as 14% as the market recovers from supply disruption issues that have driven up costs.
A new report from CarGurus says new and used vehicle prices will likely moderate this year and in the coming years. According to the online vehicle marketplace, there is plenty of room for prices to decline if vehicle inventory returns to normal volumes, as expected.
“There is hope for further price declines as prices normalize closer to inflation-adjusted levels,” Kevin Roberts, director of industry insights and analytics at CarGurus, said in a statement. “We won’t see a return to pre-COVID prices, but the data indicates there is room for an average price drop of about 14% for used models and 7% for new ones.”
For used cars, that would mean a drop of about $3,900 from the average list price of $28,600 at the end of March to a new benchmark level of $24,700. For new vehicles, CarGurus says the average price could drop from the current average of $49,600 to around $46,000.
Because used car prices are falling
Used vehicle prices are falling in part because high auto loan rates are scaring off potential buyers.
In a separate report on Friday, Jonathan Smoke, chief economist at Cox Automotive, said “demand is tepid at best, as buyers simply have no urgency to buy in the current economic environment.”
According to Experian, the average auto loan interest rate for used vehicle purchases was 11.9% at the end of 2023, up from 10.4% a year earlier.
Furthermore, the used market had been competitive for years due to the lack of supply of new vehicles. Now that the supply of new vehicles has resumed, more and more buyers are returning to that market. Roberts says the effect is reduced competition for used vehicles.
However, late model year used vehicles are hard to find right now. This is largely a “hangover” effect from pandemic-era semiconductor shortages. Compared to 2020, there was a 19% decline in dealer inventory of cars less than two years old and a 10% decline for cars three or four years old.
But there’s good news if you’re looking for an older car, as there’s been a 19% increase in the supply of cars five years old or older.
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