Since the onset of the pandemic, there has been a significant increase in car prices due to supply chain issues. With new cars in scarce supply, the used vehicle market saw above-retail prices in some areas. Even at the start of this year, car prices were 40% higher than in January 2021. Exorbitant prices like these are the driving force behind the rising interest rates we’re experiencing across the nation. Now, because of inflation and other factors, it’s anticipated that used car prices will fall drastically in the year to come.
Where Are Used Car Prices Now Compared to a Year Ago?
Recently, used car prices have been falling. According to the Manheim Used Vehicle Value Index, prices have slowly dropped over the past several months, with a 4% decrease from July to August. Further, October’s numbers reflect an overall 15% decrease since January 2022, when prices peaked.
Of course, the age of a car influences the price as well. For example, vehicles between one and three years old cost $13,000 more than usual. Likewise, 4- to 7-year-old vehicles cost $9,000 more, while 8 -to 13-year-old cars cost $5,400 above average. This means right now is still a good time to sell, but what about in the coming months?
Why Are Used Car Prices Going To Fall?
With rising interest rates and inflation, the demand for cars is falling. After all, while the price of a car may have dropped, increases in gas prices, car insurance, maintenance, repairs, and the overall cost of living have driven down the affordability of buying a vehicle.
What’s more, we’re also experiencing changes on the supply end of the equation.
In the midst of the pandemic, supply chain issues and chip shortages slowed the production of new cars, creating an increased need for used cars. However, new vehicles are slowly hitting the market again, which means used car inventory is growing as buyers choose new models over secondhand sales. In fact, Kelley Blue Book reports that used car inventory is now equivalent to 2019, sitting 26% higher than last year.
With more used cars to choose from and fewer people looking to buy them, the timeless supply-and-demand equation means that used car prices will continue to level out in the upcoming year.
How Far Might Used Car Prices Drop?
In addition to more new cars being available, increased used car inventories are also related to a slowdown in car purchases, as noted by dealers. This is primarily due to higher interest rates that make it more expensive to finance a car, limiting the market to those able to pay in cash using money they have in savings or those able to afford a hefty car payment.
With affordability issues in mind, we can expect car prices to continue to drop throughout the holiday season. J.P. Morgan Research estimates that used car prices will fall up to 20% throughout 2023.
Is Now the Time To Sell Your Car?
If you’ve been thinking about selling your car at some point, now is the time to take action. While peak used car prices are already behind us, sellers are still in an excellent position to sell as long as they act quickly. The longer you wait, the less money you’re likely to get from your car and the more time it will likely sit on the market.
While selling in winter is generally considered less than ideal — especially if you live in a cold climate and you’re not selling a winter utility vehicle — you’re better off listing now than waiting until spring. While demand is seasonably low right now, prices will be unseasonably lower as we roll into next year. Of course, there are some other things that factor into the equation.
Here are some considerations to keep in mind:
- Prices Are Higher Right Now: If you have more than one car, selling one of them now will put you in a better position than trying to sell in 2023.
- New Car Prices Probably Won’t Drop: If you need to replace the car you sell, consider that new car prices are expected to remain high throughout 2023.
- Buyers Are Better Off Waiting: If you’re considering replacing your car with another used car, wait a few months to take advantage of falling prices.
- Interest Rates Will Likely Keep Rising: If you need to finance your next car purchase, consider locking in your interest rate before rates rise again.
Ultimately, there’s no one-size-fits-all answer as to whether or not now is the right time to sell your car, but prices are indeed expected to fall in the months to come. Now that you have the numbers you need to make the right decision, let Carwiser help. Just enter some information about your vehicle and get instant offers so you can sell your used car quickly for the best possible price. Try it for yourself!