We have all heard the notion. Purchasing a used car will save us money. Many car buyers who are budget conscious often take the high road and choose a used car over a new one. In this way, they believe that they avoid paying a higher price for a certain vehicle & at the same time, get their hands on something reliable. However, this concept is now rapidly changing.
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With the inventory shortage initiated back in 2021 and moved on to 2022, we are now seeing used car prices on the rise. Many believe that we have not seen the end and that used cars will continue to get more expensive in the coming years. But many still question if the prices of used cars will ever decrease. And if so, when it's going to happen?
The mystery is yet to be resolved.
But before we answer that, let's discuss a few things first.
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Used Car Prices Aren't The Same As They Once Used to Be
Back in the day, buying a used car helped car buyers to avoid certain costs. They wouldn't have to pay a heavy premium price as they would have if they went for a new vehicle. And neither would they have to worry about the depreciation cost, which usually sums up to 20% of the vehicle's original cost. But with the inventory shortage we face today in the United States, we are now observing a sharp decline in the manufacturing of newer vehicle models. And because of this reason, used car prices have now increased.
According to cars.com, the prices of used vehicles have seen an upward trend since January 2021. The median price of an average used vehicle went up by $25,500 by February 2022. And as a recent forecast, moving on to July 2022, we observed a slight dip in the average car price to $24,000. Before the COVID disruption, the median price of a used car was around $17,500. Comparing that amount to July 2022, we see a price hike of 37%!
In July 2019, the median price of a used vehicle compared to a newer model went up to 49%! However, today the average median price of the vehicle went up by 61%.
That's a significant price difference, and it only shows that things have changed a lot since the pandemic first hit us. This new development has made people question- are used cars worth it anymore.
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The Price for Cars Are Generally Increasing Compared to SUVs, Trucks & Other Vehicle Types
The vehicle prices may vary based on the vehicle make, model & type. However, the data collected from Cars.com shows that sedan cars & hatchbacks of the older model have seen the largest spike in pricing compared to newer car models.
- Sedans, coupes, and hatchbacks (Honda Accord and Civic, Nissan Sentra, and Toyota Camry and Corolla) increased 29%-49%, depending on the model.
- Pickup trucks (Chevrolet Colorado and Silverado 1500, Ford F-150, and Toyota Tacoma and Tundra) increased 16%-41%, depending on the model.
- SUVs (Honda CR-V, Jeep Grand Cherokee, Nissan Rogue, Toyota Highlander, and RAV4) increased by 21%-33%, depending on the model.
Compared to that, if we take out a statistical analysis of car pricing over 10 years, the top-selling vehicles saw a much more dramatic spike between July 2019 and July 2022.
Will Used Car Prices Ever Go Down?
The answer is unclear, but with the recent price drop, we can estimate that car prices will eventually come down in the long run. As per J.D power's research & forecast, used-car values will diminish, and their descent will be seen during late 2022, moving into 2023.
As per KPMG, the used car prices are expected to come down as much as 20% to 30%! And this is pretty much expected to happen somewhere around October of 2022.
It may come as a form of relief for those who are direct buyers. But it sure does sound like bad news for those who financed vehicles during the inflationary period.
What to Do If You're Planning to Purchase a Used Vehicle?
If you're planning to purchase a used vehicle, you should plan your purchase. Find out how much you can spend on a used-up vehicle, and then stick with the budget you've in mind. Visit the car dealer market, and check what your options are. There are many private sellers in the market, so just ask each of them and see if they have something that suits your requirement. Inventory shortage often means that you should be prepared to make a purchase ahead of time. Always be flexible, and be ready to make a purchase the moment you find the right vehicle for yourself.
Frequently Asked Questions
Will Car Prices Drop in the USA in 2022?
Automobile markets nearly peaked in early 2022, but as we move forward, there's a significant decline in car prices observed. As far as the new vehicles are concerned, it is evident that the prices for the newer models will come down despite the persistent inflationary pressures.
What's the Reason Behind the Drop in Car Prices?
The main reason for this sudden drop can be accredited to the rise in production that's taking place in various parts of the world. The used car market is pretty sensitive to any change. Still, with automobiles, auto industries are stepping into the market with more affordable options, which sends waves of change.
How Much Will Car Prices Drop by in October 2022?
There's no exact answer to this question since it is difficult to estimate future prices. However, per KPMG's research & forecast, used car prices are expected to decrease by 20% to 30%.
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Concluding Thoughts
Will car prices ever come down? The real question is, would they ever get back to "normal"? We may see relief in the form of lower prices shortly, but it is hard to predict how long this will last. So if you're planning to purchase a used vehicle, find one that meets your needs and budget as soon as possible.