Used-Car Prices Are Falling As Market Recovers, Leases Expire

Thanks to a plethora of leases coming to an end, used-car prices are falling.

For the last few years, conventional wisdom has been that used-car prices were high as buyers sought to avoid the depreciation hit of new cars. That was true, but according to The Detroit News, used-car prices are now falling as leases started two or three years ago expire.

Lending restrictions loosened up two or years ago as the economy slowly inched out of the recession and made it easier to lease a new car. Those leases are expiring and those now-used cars are hitting the market, increasing supply and dropping prices.

The Detroit News said that analysts say the used-car supply remains far below what it was before the recession hit, but growth is predicted throughout the rest of the year and into 2015.

Prices have fallen for every month from May until now, with the exception of September. Meanwhile, supply has risen each of the last three months, including in the market for certified pre-owned vehicles, which AutoTrader said has seen an increased supply of 6 percent in the past six months, according to the News.

This is good news for the buyer, of course, but it might not be for dealers. On one hand, auction prices will be lower, but so will be transaction prices. Of course, with so many cars coming off lease, dealers might be able to negotiate better prices on trade-ins.

In the end, dealers will probably prefer to have a higher supply of used cars, something that can translate into more sales.

The trend should continue, as the economy continues to get better and more people buy new cars. One downside for sellers is that higher supply will make it tougher to sell a used car, and lease rates will rise to cover lower re-sale values.