Used car prices just plunged 10% over the past year — here are the market segments that fell the furthest

Used car prices

According to the Manheim Used Vehicle Value Index, in the first half of October, wholesale used vehicle prices fell 2% from the month before.

The index currently reads 200.5, representing a 10.3% decline from October 2021.

The drop was seen across the board. Luxury cars led the pack with a 13.5% year-over-year decline in prices, followed by SUVs (-12.3%), midsize cars (-10.4%), pickup trucks (-8.4%), vans (-6.3%) and compact cars (-5.4%).

Substantial year-over-year declines in used car prices could be a sign that hot inflation is finally cooling off.

When surging used car prices started contributing to inflation in December 2021’s CPI report from the Bureau of Labor Statistics, White House economic advisor Jared Bernstein called it “remarkable and revealing.”

“For one, it's a reminder of how extremely unusual this current inflation is,” he said in a tweet. “The world has not forgotten how to produce new (and thus used) cars and we should expect this series to revert once the underlying supply constraint eases.”

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Home prices

Another big contributor to inflation is home prices — and they might be on the way down as well.

The S&P CoreLogic Case-Shiller index showed that home prices in 20 large cities in the U.S. fell 0.44% in July, marking the first decline in a decade.

Of course, houses — whether you want to buy or rent — are still a lot more expensive compared to a year ago. But experts point to how the recent sequential decline isn’t properly reflected in the inflation figures.

“We pointed out that the way these indices are constructed, that housing costs are very lagged, and they're going to continue to go up, even though as we saw the Case-Shiller Housing Index, and the National Housing Index, housing prices are going down,” Jeremy Siegel, professor of finance at the Wharton School of Business, told CNBC last month.

Should the Fed pivot?

Investors care about inflation not only because it erodes the purchasing power of money, but also that it affects what the Fed would do.

As we know, the Fed has been quite hawkish — which is one of reasons stocks are getting pummeled this year.

But Siegel suggests that instead of making decisions based on lagging indicators, the Fed “has to be forward looking.”

“They have to look at what's going on in the market, in the housing market, in the rental market, in the commodity market.”

Siegel isn’t the only one who’s questioning the Fed’s hawkish stance. Ark Invest’s Cathie Wood recently penned an open letter to the U.S. central bank.

“The Fed seems focused on two variables that, in our view, are lagging indicators — downstream inflation and employment — both of which have been sending conflicting signals and should be calling into question the Fed’s unanimous call for higher interest rates,” she said.

“Could it be that the unprecedented 13-fold increase in interest rates during the last six months — likely 16-fold come November 2 — has shocked not just the U.S. but the world and raised the risks of a deflationary bust?”

Currently, market participants expect the Fed to announce another 75 basis point rate hike in November.