It’s pretty disheartening to be a car buyer right now. Even though there are some great new cars peeking over the horizon and some hot deals for the summer holidays, used car prices are putting the hurt on consumers’ wallets. However, there is some good news. After a price drop in February, the average used-car price dropped in May. Don’t get too excited, though—it dropped less than $100.
The average price of used cars sold in the U.S. dropped to $28,312
“The end of May showed interesting and divergent patterns for new and used listing prices … We have been expecting vehicle inflation to ease as the anniversary of the start of the chip shortage passes, and that, indeed, is occurring in the used market.”Charlie Chesbrough, Cox Automotive senior economist
With used car prices averaging nearly $28,000 earlier in the spring and rising, many had concerns about a lack of affordability in the market. However, Kelley Blue Book (KBB) reports a slight drop in prices for May to $28,312 for the average U.S. used car. Now, that’s only $60 less than April, but it’s a start.
Chesbrough believes that used car prices may continue to fall—albeit slowly—over the next few months during the summer.
Dealer supplies of used cars may be higher because of late tax refunds
Kelley Blue Book points out that dealer stock of used cars is usually lower this time of year, due to an influx of cash from tax returns. Potentially high tax returns allow more Americans to put down payments on used car prices, or buy them outright. However, this year, some refunds are arriving much later than anticipated.
KBB reports that “through May 20, the IRS had issued 74% of projected refunds for the year, when in 2019, 100% had been by two weeks earlier. However, the average refund is up 11% compared with 2019 and up 7% from a year ago, the highest refund ever recorded at this stage of tax refund season. Much of that spending may occur, instead, in the second quarter.”
However, the total availability of used cars is still low. There’s a scarcity of high-quality, affordable used cars for dealers to purchase and then re-sell. This can cause a rise in used car prices.
New-car prices are still rising
From an earlier article, Kelley Blue Book reports that “the average new car sold for $47,148 last month. That’s not quite the record high prices hit last December. But it’s close — May saw the second-highest prices on record.”
Although used car prices are seeing a bit of a relief, new car prices continue to rise. Per KBB, the average new car cost just about $47,148 in the month of May.
Should you buy a used car now, or later?
While at the moment it appears that used-car prices will continue to decline, and new-car prices may continue to rise, neither of these trajectories seem steep. There was only a $60 difference in the average price of used cars from April to May, and we estimate that things won’t change drastically any time soon.
You can dive into whether it’s better to buy a car now or wait until 2023, but it’s hard to find a clear answer.