Estimated read time: 5-6 minutes
WASHINGTON — If you're in the market for a new car, now might be a tough time to find one. Automakers are still battling semiconductor chip shortages, causing record-low inventories of new vehicles. And along with that shortage comes, you guessed it, higher prices.
The result? More buyers have been pushed into the used-car market, which has raised the demand for pre-owned vehicles, explains Sara Graves, founder of USTitleLoans, an online company that connects buyers with lenders. A recent report from Counterpoint Research suggests the chip shortage may start to ease toward the end of 2022, but until then, used car prices are likely to keep rising, Graves says.
"Prices will normalize when new car inventory normalizes, which is going to take the whole year," she adds, urging sellers to take advantage of high used car prices and demand by moving their cars as quickly as possible.
Whether you're a buyer or a seller, here's what experts want you to know about the future of used car sales.
What to expect from the used car market
The used car market will continue to show high demand in the coming months, predicts Grant Feek, CEO of the used car marketplace Tred. He expects prices to remain strong but more approachable, adding that they've moved closer to "normal" ranges in the past few weeks.
As long as global supply chain issues continue to impact manufacturers' ability to get new cars on dealer lots, used car prices are likely to hold steady, forecasts Jake Mayock, founder of automotive content website tuningpro.co. High gas prices increase the costs of importing and transporting new vehicles, which Mayock says contributes to keeping new car prices up.
Prices will normalize when new car inventory normalizes, which is going to take the whole year.
–Sara Graves, USTitleLoans
But there's a light at the end of the tunnel, assures Zach Wimpey, operations manager at Craig and Landreth Cars in Louisville, Kentucky. Even after four consecutive months of declining used car inventory levels, inventory rose by 6% at the start of 2022.
Is now a good time to buy, sell, or trade in a car?
With more people than ever working from home, many families don't have the need for multiple cars, notes Jeff Cole, president of FairLease, an auto leasing company located in Dallas, Texas. So if you have a vehicle you can live without for a year or two, he recommends trying out the market now, capturing equity that may soon decline.
While used car prices will likely remain static or decline slightly, Feek thinks they will continue to be higher than pre-pandemic levels.
"For those with older, high mileage vehicles that may become a liability, consider trading into a lease and avoid inevitable, record setting depreciation over the next couple of years," Cole advises. And considering the market conditions, Wimpey adds that a used car sitting in your garage has a greater value right now than it did in previous months.
Whether you're buying or selling, now is a good time, says Feek — even though prices have leveled off in recent weeks, demand is still high, so it's a strong seller's market and a great time to list a car for sale.
With used car prices up 22% year-over-year, Cole agrees we are currently in a seller's market. "However, with the majority of new cars still selling above MSRP, it's really only a seller's market if you don't have to turn around and buy another vehicle. Luxury cars continue to have higher demand, so there can be value in trading or selling a luxury vehicle in exchange for more budget brands."
With the majority of new cars still selling above MSRP, it's really only a seller's market if you don't have to turn around and buy another vehicle.
–Jeff Cole, FairLease
As for trade-in, Feek asserts it's never really a good time to trade in a car, while it's convenient, it will always mean leaving significant money on the table. "Selling your car privately typically means getting 20%-30% more than what any dealer will give you for trade-in."
Advice in today's used car market
Overall, it's a better time to buy than it has been in the past couple of years, as prices have recently corrected a bit toward more normal levels, Feek advises. "It's also still a good time to sell because prices still have a higher base than historic levels." If you've been waiting to buy or sell, this is about as good as things will get for the foreseeable future.
Focus on the big picture of your financial situation, Cole urges. While it's tempting to sell a car for what you bought it for several years ago (or more), keep in mind that if you need to turn around and buy something else, you'll be paying prices at the top of the market as well.
Cole states that trading in a luxury vehicle for a really good price and getting a more fuel-efficient budget car can be a great idea. But keep in mind that even if you make money off a trade-in, you have to be sure you're purchasing a car you can afford. "A more expensive car can lead to you ultimately having a higher monthly payment and therefore being in a worse financial situation."