The Federal Reserve has stated that they will raise interest rates this week to help combat inflation. Power forecasts that used-vehicle prices will drop by late 2022 and into 2023. This will result in a decrease in demand for used cars. In addition, supply chain issues due to the pandemic are beginning to clear up, helping expand auto product capacity. Millions of consumers that were forced to buy used cars may go back to purchasing new cars. Once automakers get the chips needed to produce a normal supply of new cars, new-car inventory will begin to stabilize. Auto production is expected to return to normal by mid-2022. Chip manufacturers catching up with demandĪccording to Goldman Sachs, chip manufacturers are currently catching up with demand. As the car market stabilizes, consumers can expect to see used-car prices drop down to normal levels. The perfect storm of supply and demand created a temporary and unsustainable spike in used car prices. With the shortage of new cars, consumers began to use their stimulus checks and took advantage of low interest rates to purchase used cars instead, driving up prices four times faster than new cars. As a result they reduced output, and microchip manufacturers followed suit. When the pandemic hit, auto makers expected car demand to plummet. An unprecedented and unsustainable price increase Here are three signs that the used car market crash is coming. Like all bubbles, it is inevitable that prices will come crashing down. The pandemic created an unprecedented (and unsustainable) bubble where used car prices rose by 42% since December 2019. Check out The Ascent's picks for best balance transfer credit cards
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