The pandemic threw everything out of whack, wrecking supply chains and sending asset prices wild. That wasn’t limited to stocks, bonds and cryptocurrency, either. Consumers saw home prices explode, along with car prices, boats and seemingly everything else.
Buyers used to be able to lock in great deals on used cars, but that’s not necessarily the case anymore.
According to CNBC, used-car prices have risen 16.1% compared to a year ago. Meanwhile, new car prices are up 12.6%. Further, the average monthly car payment exceeded $700 a month in June and the average new car price surpassed $47,000 in May. Both of those numbers are highs.
Per a price analysis of used-vehicle inventory from Cars.com (NYSE:CARS) dealers, “median used-vehicle prices have been on a steady upward trajectory since the inventory shortage began, and they’ve climbed every month since January 2021 with only a brief plateau in the summer.”
Semiconductor shortages appear to be the leading cause for the chaotic car market. David Paris, Senior Manager of Market Insights at J.D. Power, says the following:
“I don’t think anyone expected the supply-chain disruptions that we experienced on the new side of the market, which ultimately sent used prices to the moon.”
We’ve already seen stocks, bonds and cryptos pull back. Will housing and car prices do the same?
Forecasts for Car Prices
Paris believes there could be a “small pullback” in car prices this summer. However, the industry will likely see an increase through the close of the year. Paris adds that production should stabilize in the back half of 2022 as supply constraints ease.
Investors and consumers are hopeful that this will lead to increased and normalized production without supply-chain related delays. If that’s the case, we could start to see car prices decline in the not-too-distant future. According to J.D. Power, “used-vehicle values will begin their descent to more normal levels by late 2022 and into 2023.”
Meanwhile, consulting firm KPMG expects a notable dip in used-car prices. They expect “used-car prices to drop 20%-30% sometime in the months after October 2022.”
Finally, Kelley Blue Book says that the second half of the year is “starting to look better” for car buyers, with inventory “slowly beginning to recover, particularly in the used market.”
On the date of publication, Bret Kenwell did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
