When the pandemic largely cut off the supply of new cars, it sent used car prices through the roof, but things have slowly been returning to normal the last several years. It’s still been tough to find something decent for less than $5,000, but at least we’re past the point where off-lease cars sold for nearly MSRP. Unfortunately for regular people who can’t afford to drop $50,000 on a new car, though, it doesn’t look like that trend is going to continue. The lack of new cars bought or leased three years ago means fewer used cars will be hitting the market, Edmunds reports, cutting into the available supply.
The signs were already there in Q4 of last year, with the average price of a three-year-old used car up 3.3% year-over-year. While discounts on new cars–now that inventory levels are mostly normal–would typically keep the price of gently used cars under control, with fewer examples hitting the market this year, you can expect a mismatch in supply and demand that doesn’t do buyers any favors.
You also have plenty of people who held onto their cars longer than they planned to, meaning the cars hitting the used market will also be older on average, further reducing the supply of nearly new cars.
Why three-year-old cars matter
If you’re the kind of person who’s never even owned a car with less than 100,000 miles, it might not sound like the lack of three-year-old examples would be a problem for you. Seeing Q4 prices jump from $28,772 to $29,710 probably doesn’t mean much when you can’t imagine spending so much money on such a new car. The problem is that the used car market is all connected, and those three-year-old used cars are, as Edmunds put it, “the cornerstone of the used car market.” They typically cost a lot less than the new version, while offering most of the latest features and can likely still be had with a factory warranty.
Since new car sales were so low in 2022, buyers will have fewer options in 2025, which means higher prices. Then, those buyers who are priced out of three-year-old cars start buying four and five-year-old cars. Those buyers get pushed into six and seven-year-old cars, and before you know it, even the price of a 1998 Toyota Corolla has gone up.
When Edmunds says new car sales were bad, it means they were bad. With only 13.8 million sales, 2022 was the worst year since 2011 when they only sold 12.8 million vehicles. Ultimately, there will likely only be about two million three-year-old cars available in 2025, down significantly from the four million you would typically expect.
New car sales may improve
Based on its current projections, Edmunds expects new car sales to improve in 2025, barring any significant policy changes, supply chain crises or world wars. But, while more people buying new cars typically means more trade-ins will hit the market, shoppers have likely held onto their cars longer than they would have otherwise. That, in turn, means the used cars that are available will probably be less desirable.
If they’re the only options available, though, you may end up paying more for a car you didn’t even really want in the first place. The same trend also applies to the cars being traded in at used car dealerships, although buyers there are more likely to sell their cars privately instead of trading them in.
If buyers have the disposable income to buy new instead, they’ll likely find good deals, but those potentially higher used prices could also push those who can’t really afford it to take out longer loans to buy new cars. In a stable economy and with good job security, the worst that might happen is that they end up paying a lot more than the car is worth over the course of the loan. Sadly, nothing about the current economy feels stable, with trade wars looming, egg prices shooting through the roof, employers feeling emboldened to gut their workforces even more, kids dying of measles again, bird flu spreading, planes crashing, unemployment climbing, and taxes set to increase on everyone except the wealthy.
As it turns out, letting a billionaire buy the government and then rip it apart from the inside out to benefit him and his billionaire buddies might not be the best thing for national prosperity or stability. If things go sideways, that could easily wreck the auto industry.
Our best buying advice
With so much uncertainty going forward, if you have a car that you’d like to upgrade but don’t necessarily need to replace just yet, your best bet may be to hold onto it and maybe put some money into ensuring it lasts several more years. That plan won’t work for everyone, though, since some cars are just too old and unreliable to keep driving much longer, or even be worth repairing. And, of course, we can’t forget the Miata owners who just found out they’re having twins. Miatas are small just like babies, but for some reason that doesn’t make them the best choice when you have kids.
If you need to buy this year, just be smart about it. You don’t want to be kicking yourself in 2026 for stretching your budget to get a nicer car when you couldn’t really afford it. Maybe that means buying older or getting something without a luxury badge on the hood, but there’s no point in impressing other people while simultaneously ruining your finances. Depending on your lifestyle and living situation, it may even be possible to move to an area where you’d be able to go down to owning only one car that you supplement with an e-bike, public transportation, or a motorcycle. There are, of course, plenty of people that won’t work for, since most of the U.S. was laid out with the expectation that everyone would drive everywhere.
Mainly, just think about what you need and work from there. You can’t go wrong being careful, especially until we get a better idea of what the next several years is going to look like.
