Inflation has been raging in the American market for a while now. In addition to gas prices going up, many people looking to purchase a car have seen auto prices skyrocket as well. Even used cars that are not in the best condition are commanding hefty payments that seem simply unfair.
This begs the question: will used car prices drop in 2022?
Some believe we may see a break in prices later in the year. However, others believe the surge will remain for an indefinite amount of time. So how can we cope with this price surge and when can we (realistically) expect car prices to drop?
Why We’re Seeing Record-Breaking Surges
Already at this point in the year, you have likely seen both new and used car prices soaring to levels never seen before, adding new meaning to the words “sticker shock.”
According to the U.S. Bureau of Labor Statistics' Consumer Price Index Summary, used car prices that previously paid for their vehicles have gone up by 12.2 percent in January 2022. This is a remarkable difference compared to what these prices were just a year ago. Prices on used cars also went up 40.5 percent higher than in January of last year.
Only a year ago, it was reported that just 2% of new-car buyers were willing to pay a steep price for a car. Edmunds, the car-shopping website, reported that 82 percent of buyers purchasing vehicles in January were forced to pay more than the average price for a new vehicle. Whether they wanted to or not, these consumers had to pay a higher amount if they wanted a brand new vehicle.
How did this price surge happen? The price spike can be linked back to COVID-19 and its impact on the economy and marketplace. In the case of vehicles, its impact can be connected to a sudden global-wide chip shortage.
This critical event was triggered when automakers shut down vehicle production in March 2020 and stopped ordering chips, which work as the “brain” for the modern vehicle. But these chips are also fundamental elements of many computers and electronic devices. Therefore the electronics industry became the lead purchaser of the chips.
Consequently, as TruCar’s Mike Darrow explains, “The OEMs went to the back of the line for chips. When they wanted to come back, the supply wasn’t there.” This supply shortage of microchips triggered an unexpected ripple effect that brought upon a strong spike in used car sales because new ones couldn’t be manufactured without the chips.
As a result, the prices of used cars increased by more than 50% – even if the car had high mileage and significant wear and tear. This cost surge is now evident with new cars as well. End result? Whether you’re looking to buy a new car or a used one, plan to pay more than you might expect in pre-pandemic circumstances.
This leads to a very important and repeatedly asked question: when—or will—car prices drop in 2022?
Will Used Car Prices Drop In 2022?
These very steep prices have been a reality for over two years now. Some people think that if enough time passes, used car prices will drop down and normalize. Others feel differently. So what’s the realistic take on the situation from the experts’ point of view?
Some auto-industry analysts caution the public not to expect used car prices to drop any time soon this year. Translation: there is no end in sight for the foreseeable future when it comes to used car prices.
Conversely, other sources believe that prices will drop. More specifically, they anticipate a break in car prices in late 2022. Darrow, for example, believes that used car prices will remain high, but only until the cost of new vehicles rises to more typical levels. This would in turn lower the prices of used cars to a more standard level.
Darrow states, “When new cars come back to the market, their (MSRP) prices will come down.” He expects that used car prices will then drop following this, but more likely in the second half of this year.
Ultimately, the price tag on used cars is expected to slowly drop as time goes on. While used car prices will likely remain high for the time being, there will be a decrease over time as the economy recovers from the lingering impact of the pandemic. For now, the combination of low inventory and high prices will continue to persist.
Seize Cheap Prices When You Can
What does this all mean for you? Cheap cars are still a rare find, so if you come across one that you like, you should take it immediately. While more realistically priced used cars are expected to eventually make their way back onto the market, it won’t be happening in the near future.
Simply put, used car prices likely won’t drop for quite a while in this calendar year.
So, you might want to search for alternative means of finding reliable cars until the market balances out again. One method would be finding low-rate auto loans that can help you meet the demand of car prices.
Click below to learn about our options for low-rate loans that can help you in obtaining a car during this unpredictable period.AUTO LOANS