After finally relaxing, used car prices are on the rise again

Well it was nice while it lasted.

For nearly a year, the average used vehicle in the United States had once again become affordable for millions of people. The relief felt belated and relatively minor, but it was welcome nonetheless.

From a staggering high of $31,400 in April last year, the median price had fallen 14% to $27,125 earlier this month.

Now that the supply of used vehicles is not able to keep up with robust demand, prices are rising again and there are signs of further price increases. So many buyers have been priced out of the new car market that fewer trade-ins end up on dealer lots. The shortage is exacerbated by fewer used cars coming off leases or being dumped by rental car companies.

Average used-car list prices are up about $700 over the past month, and Alex Yurchenko, chief data officer at Black Book, which tracks prices, expects them to continue rising at least into the summer.

“If you need to buy a used vehicle,” he suggested, “now would be a good time.”

Pete Catalano, a dealership in Independence, Missouri, near Kansas City, is struggling to get his hands on enough budget cars. Typically, Catalano and his daughter, who co-own Stadium Auto, had about 50 vehicles in their used car lot near Arrowhead Stadium. You only have about half as many now. Some of their competing dealers, Catalano said, enjoy a competitive advantage because they can afford to offer financing to buyers with bad credit.

Depressed by higher gas, food and utility prices, many of Catalano’s customers cannot afford new or used vehicles. Some potential buyers he knows use tax refunds just to make ends meet rather than buying a used car.

“A cheap used car is now becoming more and more of a luxury,” said Catalano. “What the market wants right now isn’t available, and that’s $3,000, $4,000 and $5,000 cars.”

Behind the vehicle shortage and inflated prices is simply supply and demand. Much of the problem stems from rising new car prices. According to Edmunds, the average new car in the United States sold for nearly $48,000 in February — out of reach of many consumers.

Although the supply of new vehicles has increased, they remain relatively scarce and expensive. automaker enough computer chips are still missing to produce enough vehicles to meet demand, an ongoing consequence of pandemic-related supply shortages. Sales of new vehicles last year was about 3 million below normal level. Fewer new car sales means fewer trade-ins, which means there are fewer used vehicles for sale.

With used prices rising again, analysts say buyers who can afford it should buy soon. Auto loan rates could continue to rise this year as the Federal Reserve continues to raise interest rates.

Bargains are hard to find on used lots these days. Even after accounting for last year’s drop in prices, the average used car is about 35% higher than it was before the pandemic hit three years ago. At that time, the average price was $20,425.

After the government sent stimulus checks to most American households, demand for cars increased as many people spent their money. At the same time, the supply of used cars fell and prices rose. Early last year, the average used car price was more than 50% above its pre-pandemic price.

To make matters worse, there was a lack of affordable new cars. Automakers used their scarce supply of computer chips to build more expensive and profitable SUVs and pickups. They built less affordable new models – a trend that sent more buyers to used car lots. The result was increased demand and higher used car prices.

All of this left people like Carol Rice struggling to find a decent, affordable used vehicle. Rice, 65, endured a long period of frustration when she bought a used small pickup truck for her farm near Carbondale, Kansas. For six months she found little.

“I’m retired and I can’t afford to buy a new car,” she said. “There weren’t that many used cars, and when there were used cars, they were quite expensive.”

Last month she finally found a 2003 Ford Ranger that she liked and could afford on Catalano’s website. She bought it for $7,700. Despite being 20 years old and with 140,000 miles on the odometer, the Ranger is in solid condition and has the all-wheel drive that Rice wanted.

“It was a good looking vehicle and the price was right,” she said.

Few analysts expect prices for used cars to fall in the near future. Catalano doesn’t see any sustained price declines for the next year or two.

Others say it’s hard to predict. Amy Gieffers, senior vice president at Vroom, an online car buying site, notes that a few market forces could keep supply low and prices higher: Fewer trade-ins, fewer leases, lower fleet sales by rental car companies.

On the downside, she says, more expensive vehicles and higher lending rates could depress buyer demand. Eventually, traders could be forced to lower prices.

“It’s really complex right now,” she said, “because you have some competing forces.”

Both Black Book’s Yurchenko and Cox Automotive senior economist Charlie Chesbrough expect used car prices to rise through the summer before softening slightly as part of a normal year-end depreciation cycle.

Earlier this year, Chesbrough said he thought higher lending rates would drive buyers away from both the new and used car markets. Instead, robust demand from affluent buyers for expensive, newer-model used cars has bolstered sales in the United States.

Many of these buyers pay cash to avoid higher interest rates. says the average lending rate on a used vehicle is now 11.3%, up from 8.1% when the Fed began raising rates a year ago.

With demand high and vehicle inventories tight, Chesbrough doesn’t expect sales to fall even if the economy slides into recession. Although many buyers with lower credit ratings have exited the market, sales remain solid.

With used-car inventories likely to remain tight for the foreseeable future, Chesbrough doesn’t expect prices to ever drop anywhere near pre-pandemic levels

“We just haven’t created enough passenger transportation in recent years,” Chesbrough said.

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