New data indicates that used car prices in the US will soon increase again, following a steady decline for most of last year.

This news should come as a surprise and an unpleasant one at that. Last month, we reported that used vehicle prices were expected to return to normal in 2023 following record increases in 2021 during the Covid pandemic. Last year, used vehicle prices steadily declined, but a new report from CBS News claims things are about to change.

The latest data shows that wholesale used car prices have increased by 4% in just the last two weeks. Higher wholesale prices translate to higher dealership prices for buyers. "We did not anticipate that prices would jump as much as they have," said Chris Frey, senior industry analyst at Cox Automotive. "It made my eyes jump out."

Basically, it's this: dealers began stocking fewer and fewer pre-owned vehicles as more new vehicles became available. That caused used car prices to drop. But Americans will start receiving tax refunds, driving up vehicle demand, and dealers must buy more vehicles in preparation. Increased used car prices are the result. The economy is also a factor. The recession many analysts predicted would happen has yet to happen.

Instead, the economy added over 500,000 jobs in January, surpassing predictions. When you have lots of people employed, they require vehicles to get to work, further fueling demand.

"If you want to point at one factor that drives demand for cars, it's jobs," said Ivan Drury, director of insights at Edmunds. "If you've got a job, you've got a car."

That's all fine and good to a certain degree. Still, when popular used vehicles like the Ford F-150 and Chevrolet Tahoe saw upwards of 45% price increases in some cases back in July 2021, no one is going to be happy if something similar happens again.

The disruptions caused by the pandemic are still being felt today because far fewer people signed up for the typical three-year lease in 2020 due to stay-at-home orders. You don't need to drive when you're working from home (or not working at all). Those three-lease contracts that never happened should typically be ending right about now, which would see those vehicles hitting the used car market.

"The repercussions of the pandemic are coming through," Drury added. The supply is definitely not going to be there. The supply for 3- and 4-year-old vehicles, the majority of the used vehicle market, simply isn't there."

Used vehicle buyers who can wait are advised to do so until late spring or early summer. "I don't think this latest increase is a blip. But I imagine prices could come down after spring and tax refunds land," Frey said. "We've been calling for a four-percent decline in prices from December last year to December this year," Frey continued. "We may have to revise that."