Used car prices may be coming back down to earth.
Following a microchip shortage that limited production of new cars, used car prices soared, partially due to the low inventory of vehicles. While low inventory has continued, that could soon change.
Though many consumers had purchased vehicles, a growing number may not actually be able to afford the loan payments.
Nearly 13% of car buyers have a record-high payment of $1,000 a month or more. That’s nearly as high as the average mortgage payment of $1,600, reports stock analyst C. Scott Garliss at Stansberry Research.
An increased number of vehicle repossessions show that these payments are clearly not sustainable. Buyers are now defaulting on loans made in 2020 and 2021 when loan forgiveness and pandemic stimulus money were available. Now, as loan payments restart and buyers’ paychecks return to normal, they’re struggling to make car payments, Garliss notes.
Default rates have doubled since 2020. California had a 8.7% default rate, Texas 10%, and Washington, D.C., 23%.
Of the repossessed cars, many that go to auction are worth less than the loan amount that still needs to be paid.
With so many repossessed cars headed to auction, the inventory of used vehicles could see an increase, meaning car prices could start to come down.
