Used car prices have fallen for the first time since March as the balance between supply and demand begins to tip.
The latest data from Cap HPI on the October market shows used car prices have fallen by 2.1 per cent in the trade.
And the valuations experts are predicting this will continue with November likely to register a fall in used car prices too.
These price drops have not yet been reflected in the prices of advertised used cars, but show the trade is reluctant to pay the inflated prices used cars have been going for in recent months.
Cap HPI believes the market is ‘undergoing realignment’ as the usual seasonal drop combines with uncertainty that the pent-up demand that has been driving used car price growth can continue.
Derren Martin, head of valuations UK at Cap HPI, said: ‘In October the trade market moved sooner and quicker than the retail one, making it difficult to follow the market decline, for those that price purely off advertised prices.
‘The market appears to now be undergoing some realignment.
‘There are several factors at play. Values do tend to drop in the final quarter of the year, by varying degrees, as demand drops away in the run-up to Christmas and supply levels usually increase.
‘We do appear to be experiencing that drop off in trade demand, but it is exacerbated this year by economic uncertainty, high prices and reasonable predictions that the consumer appetite for used cars that has driven up prices cannot last forever.’
Used car supply will have increased following a decent September of new car sales. While the overall number of used car registrations were down for the month overall, dealers still took in a large number of part exchanges which quickly make their way into the used market.
City cars and superminis – both of which have seen the biggest price increases over the last few months – experienced above-average falls in October.
City cars reduced by an average of 2.9 per cent (£150) at the three-year point, with larger drops for the Citroen C1, Skoda Citigo, Vauxhall Viva and Volkswagen Up.
Superminis reduced by 2.5 per cent (£200) with some of the most heavily affected at the three-year age being the Ford Fiesta, Hyundai i20 and Kia Rio.
All other mainstream sectors experienced a downturn in values.
SUVs, although still dropping in price, held up slightly better than most, despite being almost one-third of wholesale volume now.
Martin added: ‘2020 has been completely different from any other year in history and that includes what has happened to values of used cars, rising against all expectations.
‘It is particularly difficult to predict what may happen, with so much uncertainty due to localised lockdowns.
‘While trade volumes are not as high as in previous years due to lower than normal registration volumes, and leased vehicles are still on extensions, plus new car supply issues, it is still highly unlikely that demand for wholesale stock will overtake supply for the remainder of the year.
‘As a result, with values remaining higher than they were a year ago, by over five per cent on average despite the recent drops, we are forecasting that values will continue to drop in November.’
Last week, The AA reported that demand for used cars was still high – up 15 per cent on the same time last year.
Analysis of searches in September for used vehicles in 48 major UK towns and cities showed that demand across the UK was 15 per cent higher than what was recorded in September 2019.