Existing-Home Prices Might Be Falling, But Used Vehicle Prices Are Soaring to Record Highs

Existing-home prices may be falling, but used car prices reached an all-time high in May, according to a new report from Manheim Consulting (see chart above). Manheim's Used Vehicle Value Index of 127.8 in May was 5.6% above its year-ago level of 121. In eight out of the last nine months since last September, the Used Vehicle Index set new a new monthly record.

In this WSJ video,"Time to Trade In That Used Car?" four reasons are given for record-high used vehicle prices:

1. Earthquake-related reductions in Japanese production, leading to shortages of some popular new cars like the Toyota Prius.

2. The recession-related collapse in new car sales in 2008-2009 is now contributing to a below-average number of trade-ins and an overall shortage of used cars on dealers' lots.

3. Because of the weak economic recovery and labor market sluggishness, demand for new vehicles is soft, and demand for used cars has increased as cost-conscious consumers remain cautious when making major purchases, and look for ways to save money when buying cars.

4. Higher gas prices are also making car buyers more cost-conscious, which has increased demand for used cars, especially 4-cylinder vehicles.

5. Update: The destruction of almost 700,000 used cars in the summer of 2009 during the "Cash for Clunkers" program could also be contributing to the current shortage and high prices for used vehicles. (HT: LoneSnark)