You may be aware of the fact that the cost of almost every good has skyrocketed over the last two years and used cars aren’t an exception. With inventory shortages that even made their way in 2022, the prices of used cars are at an all-time high as of now.
While buying used cars is cheaper compared to owning a new one, finding a good deal is challenging. As such, many drivers are wondering when the prices for used cars would drop. Thankfully, the prices of used cars are expected to drop in late 2022. Read on to find out more about it.
What about the current car market in the US?
There is no denying that the prices of used cars are on the rise. According to reports, the prices of used cars increased to a whopping 14% in December 2021 compared to the previous year. So, what is the reason for elevated prices?
One of the reasons could be because of the high demand for vehicles this time around. According to HIS Markit, there would be around 15.5 million car sales in 2022. Now, that’s an increase of about 2.7% from the previous year. In addition, the global chip shortage everywhere is a major concern right now.
As you know, these chips are an integral part of vehicles. Because there is a high demand for products that use the chips and the slow production of the same due to the COVID-19 pandemic, the prices for used cars witnessed an increase of about 19.1% over the past years. On average, the price for a vehicle stands at $25,904 at dealerships.
What kind of vehicles are affected by the elevated prices?
The much older vehicles have seen a steep increase in value compared to newly used vehicles. Although the demand for SUVs and pickups tends to remain high than the normal cars such as crossovers, coupes, hatchbacks, and sedans, these are the vehicles that experienced the highest price.
However, there is a valid reason for that as well. No wonder, the production of new cars was deeply affected compared to the trucks and SUVs. Automakers were diverting their limited sources toward producing larger and more expensive models.
However, it is not that these types of vehicles didn’t increase their prices. In fact, they did what others were doing. Despite that, the increased prices were relatively lower compared to the used car values. Here is some information about the hike in median pricing for used cars. The duration was from December 2019 to December 2021.
- The price for used SUVs increased from 32% to 41%
- The price for used pickups increased from 23% to 48%
- And, the used car prices such as hatchbacks, coupes, and sedans increased from 40% to 52%
So, when would the prices for used cars come back down?
One thing you should understand is that used car prices depend on the extent of new vehicle production. However, it is expected that the production would recover mostly by late 2022. That way, you can expect used car prices to return to normal by the end of 2022 or during the first few months of 2023.
But the sad news is that the prices won’t return to what they used to be pre-pandemic. Still, it is predicted that the price drop would be about 20 to 30% after October 2022. Some experts even predict that the new normal where the prices were 54%, the new price would be around 68%.
Besides, many automotive experts are supporting the theory and they believe that the global chip shortage is due to end during the latter months of 2022. Hence, this should be the time when you may invest in used cars. If you are thinking about investing in a used car, wait for a few months. If you can hold on for another few months, you can save a lot of money.
How to get yourself prepared for buying a used car?
Shoppers who have adequate time should wait for the opportune moment to buy used cars. In short, if you want to buy a used car, wait for some time and watch the prices fall. However, some people don’t want to wait for the right time to buy used cars.
So, if you believe that you don’t need to wait for the right time and can pull off the purchase, here are some important factors that you should consider.
1. Plan ahead of the purchase
Even when the industry was hit by lower production of vehicles, the traditional way to buy vehicles still applies. Therefore, find out how much you intend to spend and stick with the budget you have in your mind.
In addition, try to find out the best deal from private sellers and dealerships. Apart from that, the industry shortage means that you need to remain flexible and should be prepared as soon as you find out the right vehicle for your needs.
2. Think twice before applying for long-term loans
Although an auto loan for a long period might reduce monthly payments, it has some drawbacks. Certain things such as high cost of finance and high probability of experiencing upside down, which is investing more on a car than its value, are some of the important factors to consider.
This risk tends to increase when the value of used cars decreases in the upcoming years. A report from Experian states that a long-term auto loan carries higher payments in recent years than they used to be earlier.
While the loan terms of 73 to 84-month increased from 19% to 25% in the 3rd quarter of 2021, the average monthly payment increased to $465 in 2021 from $410 a year before.
3. Leverage trade-in
Elevated used-car prices especially on older models can surprise a buyer who has a car to trade in. As per reports, the trade-in equity experienced a rise of up to 88% from the previous year.
If you want to avoid the risk, consider putting the trade-in equity to the down payment on used cars. That way, it would reduce the total amount needed to finance while dodging an expensive purchase.