The coronavirus has had a drastic impact on the used (and new) car market. For prospective buyers, understanding where used car prices are currently and what experts forecast for 2021 can help you decide if you should purchase a used car, purchase a new car or continue driving your current vehicle.
An overview of used car prices and factors that affect it
There are several key factors that affect used car prices. Understanding these factors helps when forecasting where prices will be in the upcoming year. Notable factors that affect the price of used cars are the supply and demand of used cars and the supply and demand for new cars. Let’s review the current state of both below.
The supply of used cars
The supply of used cars has dwindled in 2020. This is of course due in large part to the coronavirus, in which fewer people are willing to sell their current vehicle to dealerships because of various concerns. The lack of supply for many used car dealers has affected the cost of used cars to rise overall.
The demand for used cars
Used car purchases have risen to 85 percent in 2019, meaning that 85 out of every 100 cars purchased were used, and only 15 out of 100 were new. In 2018, used cars accounted for 80 of 100 purchases, and the number was only 77 out of 100 in 2017. We are seeing the number continue to grow in 2020, which increases the overall value of used cars. This is another contributing factor to the sudden and unprecedented rise in the average cost of used cars across the country.
New car supply and demand
The new car supply and demand (and subsequently the price) also affect the price of used cars. When new cars are in short supply, either because production is low or demand is high, the used cars will also become more valuable. In 2020 due to coronavirus, many manufacturers have cut back or temporarily halted the production of new car models, leading to a limited supply of new cars. This subsequently raises the prices of new cars, causing many more to look towards used vehicles instead.
The current status of used car prices
So what does all this mean as it relates to the current price of used cars? Well, this year the average used car has sold for substantially more than in previous years. In fact, the average listing price for used cars rose more than $700 from June to July in 2020, and the trend has continued into the fall as well. In other words, it is a definite seller’s market as it pertains to used cars. Of course, this is largely contributed to the coronavirus and the unprecedented moment we are living in during the pandemic, so the current status of increased used car prices does not necessarily suggest we will see the same trend heading into the new year.
What to expect with used car supply and demand in 2021
As discussed, the supply of used cars has diminished this year, and the demand has not had the same level of decline, leading to more buyers than there are available used cars (compared to previous years). The used car demand may pick up in 2021 as more people return to their normal lives and are more willing to spend money on a new vehicle, and the supply may increase as dealerships begin to focus more on selling new vehicles once production of 2021 increases.
Forecasting 2021 used car supply, demand and pricing
It is safe to assume that the automobile industry will return to normal once the COVID-19 pandemic is behind us, which likely will not come until there is a safe and effective vaccine. As it relates to 2021 specifically, the used car prices are likely to remain higher than normal for the first half of the year.
With that said, the average listing price for used cars should come down slightly as manufacturing picks up for car manufacturers. An increase in new car production and demand will make used cars more of a buyer’s market. As 2021 progresses in the second half of the year, we may see a return to the same supply and demand of used cars that we saw in 2017 through 2019.
Forecasting used car prices in 2022 and beyond
Although the automobile industry may remain rather slow throughout 2021, we should see normal, or perhaps even lower than normal, car prices for 2022, barring any unforeseen circumstances. This is, of course, due to the COVID-19 pandemic, which we should be able to put behind us by January of 2022. When it comes to purchasing a vehicle, timing is crucial. In times of financial uncertainty, it is best to only spend on essential costs.
Our recommendation for prospective car buyers
Essentially, car owners have three options. They can buy a new car, buy a used car or keep the car they currently have. Considering the current price of used and new cars in 2020 and the likelihood that prices remain higher than normal in 2021, we recommend keeping your own car until the economy, and specifically, the automobile industry returns to normal.
Rather than paying higher prices for a used vehicle, consider fixing up your current vehicle instead. This may include upgrading the brakes, replacing all of the car lights (headlights, taillights, etc.) and scheduling a full engine tune-up. Particularly if you are happy with your current car, this is likely the best solution. With thorough maintenance, you should be able to hold off on purchasing a new vehicle for at least a few years, during which point the automobile industry should have returned to normal.
The bottom line
Used car prices increased in 2022. Although the trend may not continue at the same rate, used car prices should remain high throughout 2021, especially during the first half of the year. If a safe and effective vaccine is properly distributed in 2021, then you could start to see more reasonable used car prices as car manufacturers begin to produce more new vehicles and consumers feel more confident spending money.