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Why used car prices are dropping — at least for now

Thanks to pandemic-created supply chain and manufacturing disruptions that are now somewhat abated, new cars have been easier to come by, lowering used car prices.

DES MOINES, Iowa — The car market has a seasonality of sales to it. More cars fly off the car lots during the warmer months than in the colder months.

"Nobody likes to come stare at cold steel on the lot when it's snowy and icy," said Shane Wong, sales manager at Tom's Auto Sales near the Iowa State Fairgorunds.

But that winter lull is just about over. 

Wong says customers really start coming out in droves when tax season — or that refund — hits. He's noticed even more of an uptick over the past couple of years.

It comes at good timing: used car prices are down 5.5% over the past 90 days, and down over 8% over the past year. The problem is, the sticker price you see only tells part of the equation.

"One of the things that you have to keep in mind is interest rates have also gone up," said Dr. Peter Orazem, an economics professor at Iowa State University.

Used car interest rates are almost always higher than new cars, for a variety of reasons. Not only that, but a potential recession is looming.

"As a luxury item, automobiles tend to fall faster during recessions and rise faster during upticks. A reduction in [used car] prices are probably not a good indicator for what's happening with the overall economy. They're a signal of potential problems across the board in terms of a reduction in labor demand," Orazem added.

There is another factor to consider as well: electric vehicles.

With more states and even the federal government being more apt to give subsidies for EV purchases, that will affect prices for traditional vehicles.

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