Source: Shutterstock

The pandemic has turned everything upside down, destroying supply chains and sending asset prices soaring. It was also not limited to stocks, bonds and cryptocurrency. Consumers have seen house prices soar, along with prices for cars, boats and seemingly everything else.

It used to be that buyers could get great deals on used cars, but that’s not necessarily the case anymore.

According CNBC, used car prices were up 16.1% from a year ago. Meanwhile, new car prices rose 12.6%. Additionally, the average monthly car payment topped $700 a month in June, and the average price of a new car topped $47,000 in May. Both of these numbers are peaks.

According to a price analysis of the used vehicle inventory of (NYSE:CARS) dealers, “median used vehicle prices have followed a steady upward trajectory since the inventory shortage began, and have climbed every month since January 2021 with only a brief plateau in the summer.”

Semiconductor shortages seem to be the main cause of the chaotic automotive market. David Paris, Senior Manager of Market Insights at JD Power, says the following:

“I don’t think anyone expected the supply chain disruptions we experienced on the new side of the market, which ultimately sent bargain prices to the moon.”

We have already seen stocks, bonds and cryptos pull back. Will housing and car prices do the same?

Forecasts for car prices

Paris thinks there could be a “small pullback” in car prices this summer. However, the industry is likely to see an increase through the end of the year. Paris adds that production is expected to stabilize in the second half of 2022 as supply constraints ease.

Investors and consumers are hoping this will lead to increased and standardized production without supply chain delays. If so, we could start to see car prices drop in the not-too-distant future. According to JD Power, “used vehicle values ​​will begin their descent to more normal levels by the end of 2022 and into 2023.”

Meanwhile, consulting firm KPMG expects a noticeable drop in used car prices. They expect “used car prices to drop 20% to 30% in the months after October 2022.”

Finally, Kelley Blue Book says the second half of the year is “starting to look up” for car buyers, with inventory “slowly beginning to recover, particularly in the used market.”

As of the date of publication, Bret Kenwell held (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to publishing guidelines.