Why are Used Car Prices Expensive Right Now?

Used cars cost quite a bit more today than they used to. The prices have gone up more than would be expected with inflation. So, what's really going on with used car prices? Why do some of them cost more than a new car? Here's what to consider when understanding the pricing changes.

Used car prices are up just over 21% from November 2020 to November 2021. That makes the average used car cost nearly $30,000. That means many people buying used cars today are purchasing vastly overpriced vehicles for what they're actually worth.

The prices of used cars could crash in the future, too, leaving a lot of car buyers with vehicles that aren't worth nearly what they paid for them. If they bought those cars with financing, they might even be upside down on their payments, meaning the car's value is less than what they owe. Selling the car to someone else becomes very difficult at that point unless they can come out of pocket for the difference.

New cars also cost more than they used to, pricing some people out of the market for buying them. But it's not just the cost of new cars that's helping to drive the surge; it's also the shortage of them. Microchips needed for new vehicles are in short supply due to the pandemic, so there aren't as many cars available.

Additionally, there's also a worker shortage in many different industries, and the auto industry is no exception. Since there aren't enough workers to produce all the orders for cars, and there aren't enough microchips to put into the new cars that could be produced, everything is reaching a bottleneck that's causing the prices of what is available to rise rapidly.

When there's a short supply of anything, the price often rises. So, it's a twofold problem. Buyers can't find the new cars they want, and if they do find them, they often can't afford them. That means they turn to the used car market, looking for something that fits their budget. Usually, that makes sense, as many people who can't afford a new car will buy used.

However, because so many people are doing that, there's also a shortage of used cars. That's driving prices even higher because people will pay more for something when there's a short supply. The rise in prices isn't limited to the vehicle market, either. Gasoline, homes, and groceries are also rising in price.

The question on the minds of most car buyers is when will they see used car prices come down again? The CEO of Intel, a major microchip manufacturer for the automotive industry, says it will be one to two years before things normalize again. That doesn't mean prices won't drift downward as supply starts to catch up again, but buyers won't be seeing significantly lower used car prices anytime soon.

Others who work in the industry say it could be 2023 when that shift really starts to take hold. The lack of output will have to change, and that's not the only factor. Rising inflation is a serious concern, which could mean prices will stay higher for the foreseeable future.

It's also possible that a new normal for both new and used car prices will develop out of this. If that happens, the floor for car prices will remain higher than in the past, and buyers won't see prices come down significantly in the future. Fortunately, there are still opportunities to get good deals. By being patient and staying open to different brands and styles, you can find a car that meets your needs and is still affordable.

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