Why the Used Car Bubble Will Burst Soon
Wholesale used vehicle prices are surging. For now.
In the June edition of the NADA Used Car Guide, prices of small vehicles are expected to increase from May levels, some by as much as 17 percent.
For example, NADA could raise the price of a 2007 Toyota Prius by nearly $2,000 (or 15 percent) and a 2010 Honda Civic LX by 12 percent. Even a 2007 Hyundai Accent, a car that should be plummeting in value, could increase by $875.
We’ve discussed in depth the reasons for these price jumps, but now we should begin to wonder when the bubble will burst.
The short answer: Prices could begin to fall in about three months.
That’s just my best educated guess, so be sure to let me know if you agree or not. Here’s my thinking:
New car prices are higher on average right now, partly still due to production slowdowns caused by the devastating earthquake in Japan. Combine that with lower incentives on new fuel-efficient vehicles due to higher gas prices, and it’s no surprise that the values of certain used cars are on the rise.
It won’t take long, though, for new-car production and deliveries to get back to normal. Factor in the end of the summer driving season in a few months, and we could see gas prices begin to sink. As a result, sticker prices on new cars will drop, incentives will be back in full force and that 2007 Accent will never increase in price again.
While no one knows for sure, I wouldn’t be surprised if gas prices fell back toward $3 per gallon by September/October. If that happens, it’ll be the needle that pops this overly inflated used car bubble we’re currently sitting in.
If you need to buy a fuel-efficient vehicle, try to wait through summer, and I’ll bet you’ll find a better price. Then again, if you have one you need to sell, post it on DealFinder now and someone will very likely fork over big bucks for it.
Would you pay 15 percent more for a small car today than what it was worth last month?