Based on a tracking index of used car prices, a well-known money analyst says they’re appreciating faster than the stock market and bitcoin. Market researcher Jim Bianco says, “If you want to know what the best investment you probably had in 2021, it’s that car sitting in your driveway or in that garage.”
The Manheim Index shows the spike in used car prices
According to the Manheim tracking index, in the last four months, used car prices have increased by more than 20 percent. That percentage is more than the S&P, and bitcoin, too. “As of December 15, the latest set of data we’ve got, they’re just accelerating higher and higher right now. There’s no peak at least as of now,” he says.
There are reasons why this is happening. First, new-car prices are pricing out some looking for a new car. Some of this increase is based on the chip shortage, which has almost eliminated negotiating prices with dealers.
The second reason is that flippers are buying up used cars to sell at higher prices. So some new car buyers are looking at the secondary market, while at the same time speculators are buying up cars. But on CNBC Bianco said you should buy now as prices are only going up in 2022.
Aren’t used cars depreciating assets?
A used car is supposed to be a depreciating asset. They’re not supposed to go up in value unless they’re certain Ferraris or Porsches. “This year they’ve gone up in price 49%, call it 50%,” he says. What Bianco doesn’t say is when we might see pricing start to fall in the used car market. According to Kelley Blue Book, the average new car cost is $46,320, while the average used car price is $27,569.
Unfortunately, all of this activity points at another tell-tale sign of inflation. This could be the first inflation spike in over a generation. “This is exactly what they don’t want to see happen because this is that self-reinforcing idea about inflation,” he says, referring to the Federal Reserve.
If this is inflation, when will used car prices drop?
Some analysts say that while we are in the midst of an inflationary period, it will start to taper off in 2022. But it could be a slow drop that takes a while for consumers to see in their wallets. “This could go on for another year. It could go on for two more weeks,” Bianco said. “The activity that you’re seeing is probably bubblicious.” What he means is that it is a bubble. When it pops, prices will fall fast and hard.
So it depends on whether you need a newer car now, or you can wait. And if you can wait, the only question is how long this will last?