During the pandemic, used car prices rose to record highs and then cruised back down to more palatable levels toward the end of 2022 and the start of 2023.
But now, if you take a look at inventory at used car dealers, they’re ticking back up. If you’re wondering why this is happening and what the next move may be, keep reading. The market is becoming more unpredictable than ever, but experts have some idea of what is going on.
The Prices Are Down Overall
It’s getting tough to predict what is going to happen in the used car market. The prices rose to never-seen-before levels and then plummeted by 15 percent or more after a long boom period. What we are actually seeing now with rising prices is a market that is stabilizing. Inventories are still low but more stable than they were during the pandemic, and although some people are calling this rise in prices a surprise, it’s really just how the market works. As prices go down, sales go up, and then as prices go up, sales go back down.
A Spike in Demand
The demand for used cars suddenly started to spike in January of this year. This resulted in an increase in the price of wholesale vehicles at auction as they struggled to find inventory, and an increase in prices on vehicles at used car dealers. When the wholesale prices start rising, it eventually trickles down to the consumer. It usually takes about four to eight weeks before car buyers see a similar increase.
The reason for the high demand was the lower used car prices. These lower prices lead many consumers back to used car dealers, where they could upgrade their ride once again without breaking the bank. If you think about it, many of these buyers held onto their vehicles for longer than intended because the prices for new and used cars were so high, and inventories were low. It was difficult to get a new or used car for well over a year, and updates were well overdue.
The Economy Is Playing a Part
The turmoil in the overall economy is also playing a part in the rise in used car prices. With so much uncertainty about whether or not there will be a recession, people are more conscious of their budget, and a used car payment is lower than a new car payment.
What’s Coming Next?
While it may seem like prices are rising, market analysts believe that by the end of 2023 the prices will drop again, and we will end the year with lower prices. We probably won’t see prices as low as they were during the initial drop, the prices will still be lower than they were before the pandemic.
What we will see in the next few months is the trickle-down effect from the higher wholesale prices. Since they are paying more for the cars they purchased in December and January, when consumers head to used car dealers in March in April, what they pay will reflect the increase. It should then turn back around once again.
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