Used cars may be affordable again. Is now a good time to buy?

A new report shows used car prices are starting to level off, but doesn’t predict a sharp decline anytime soon.

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Barry EitelContributing WriterBarry Eitel a contributing writer at Policygenius covering personal finance and other topics.

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Shipping delays, chip shortages, and limited car parts contributed to one of the hottest used car markets during the pandemic. But a new report suggests prices are starting to level off. 

Inflation is raising prices across the board, including cars. The auto industry is driving 22% of inflation in the United States, according to a new report by CoPilot, a car-buying app. 

Prices for used cars with model years from 2015 to 2021 jumped 43% during the pandemic and hit a peak at the beginning of 2022. In the last three weeks of January, the report shows prices dropping 1.4%. 

“January 2022 represented the first sustained retail price drops that we’ve seen since used car prices took off in March 2021,” says Pat Ryan, CEO of CoPilot. “This softening is the beginning of a long and turbulent road back to normal pricing.”

Prices for “nearly-new” cars around one to three years old are dropping the most at 2.1%, averaging $41,121 since the peak. Used cars four to several years old are down 1%, averaging $31,046. 

Supplies for used vehicles are slowly returning to normal levels, Ryan says. Used car prices helped drive a spike in inflation, which last year inflation cost the average household $3,500 and is the No. 1 reason people feel financially anxious this year. Even for those not looking to buy or sell a car in the coming months, a downturn in used car prices could have  implications for any owners looking to capitalize off the still-hot market.

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CoPilot’s report shows used car prices are starting to level off, but doesn’t predict a sharp decline anytime soon. Here’s what you need to know if you’re in the market to buy or sell a new car. 

Is now a good time to buy a used car?

If you’re in the market for a used car it's important to understand that while prices might be softening in the short term, they are still well above pre-pandemic prices.

“Consumers in the used-car market in 2022 need to be ready to face tight supply and high-price,” says Michelle Krebs, an executive analyst at Cox Automotive. “Anyone in the market today should be ready to search around for good deals.” 

Instead of watching the national average price of used cars too closely, potential buyers should comparison shop and be prepared to take advantage of deals they find on any given day. 

Krebs says to expect an extensive search for a good deal. You can use online tools as well as visit dealerships in person. Here’s our guide to purchasing a used car directly from a private owner.  

“Doing the research, and being ready to move fast, is key to finding the right vehicle in today’s market,” Krebs says.

One of the biggest reasons to purchase now is taking advantage of low interest rates before they rise, Ryan says. The biggest reason not to buy right now is that you run the risk of paying peak prices before they return to a more normal range.

“If you can wait six to 12 months, you are likely to get a much better deal,” he says. 

Is now a good time to sell a car?

Used car owners should not rush to sell just because data shows used vehicle price inflation is dipping. Auto manufacturers are still struggling to fill dealership lots with new cars, so consumers will likely stay interested in used cars for the foreseeable future.

“New-vehicle inventory right now is historically low, and that is pushing more buyers into the used-vehicle market,” Krebs says. “We expect used-vehicle retail prices to climb modestly in the spring and remain elevated.”

Ryan says used car prices will favor sellers until manufacturers can better meet demand, which is at least several months away. However, newer cars with model years 2019 and younger are seeing the biggest price dips, CoPilot found. The average price for 2020 vehicles dropped 4.4% from early January. 

Potential sellers of newer used cars might get more money if you can sell before new car inventories hit the lots.  

Weathering a changing market

While CoPilot’s report is welcome news for both car buyers and inflation hawks, the downward trend in the used car market is only a month old. 

“We do not expect prices to return to close to normal until new car supply rebounds in the second half of 2022 or early 2023, depending on the manufacturer,” Ryan says.   

Patience and research will be necessary for both pre-owned car buyers and sellers this year. Average used car prices might have peaked, Krebs does not think prices will plummet this year in any way that would mirror the upward spike last year.

“We are not expecting a significant ‘price correction’ in used cars,” she says. “Overall, the economy is relatively healthy and unemployment is low.”

Regardless, the market, in general and for used cars, continues to change. Before rushing to make a purchase, car buyers should take higher car costs into consideration. Some car insurance providers are boosting premium rates 6% to 8% because car repairs have become more costly since the start of the pandemic. [1]

Some companies give discounts for certain safety features, though, so it is wise to check with an insurance representative to ensure the best deal before buying a car.   

Image: Thomas Barwick / Getty Images

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