What used cars tell us about the future of the economy

The Bank of Canada is determined to crush inflation, but that doesn’t mean prices are going back to pre-pandemic levels. For proof, look no further than the used car market.

Driving the news: Prices in the used car market aren’t going up anymore, but they aren’t coming down much from pandemic-era heights either, according to the latest data from Canadian Black Book.

  • While the price of an average used car has slowly edged down from around $37,000 last year to $35,000 now, that’s still far above the 2021 level of roughly $24,000.

Why it’s happening: Prices for used cars are stuck at elevated levels because lots of pent-up demand is chasing too little supply.

  • At the same time, higher interest rates have made car loans more expensive—the average monthly loan payment for a car in Canada is now $900, according to JD Power. 
  • That's more than erased any affordability gains buyers may have seen from slightly lower prices.

Zoom out: If all this sounds familiar, maybe it’s because similar dynamics are playing out in the housing market, where a supply crunch is colliding with tons of demand and higher rates to make homes less affordable.

  • Housing prices did fall in some markets, but that trend is already starting to reverse due to similar factors that are keeping car prices high.

Why it matters: Inflation in the car market is gone, but cars are still way more expensive than they used to be, and it doesn’t look like they’re going to get much cheaper in the near future. It’s a reminder that whipping inflation isn’t going to automatically make life more affordable.