Off-Lease Car Glut Might Mean Used-Car Buyer's Market

CARS.COM — A glut of lease returns could stir up a buyer's market for used-car shoppers. The L.A. Times says an influx of leased cars, which reportedly accounted for a third of all new-car sales as recently as 2015, are returning to market. Unsurprisingly, the oversupply is squeezing prices on late-model used cars.

Related: First-Time Buyers: Should I Lease My Car?

This year, a swell of cars will come off lease — that is, returned by original lessees when their terms run out — as new-car leasing starts to ebb, the L.A. Times reports. That could depress used-car prices, especially for anything that isn't an SUV or truck. Such segments are booming amid cheaper gas today, the newspaper reports, which means off-lease sedans could see even lower prices.

The overall effect on used-car prices is scant. In auction company Manheim's benchmark used-vehicle value index, values have stayed in roughly the same range over the past two years. But leasing has historically been more popular among luxury cars, and prices in some examples suggest the drop could be legit.

As of Monday, the average listing price on Cars.com for a three-year-old BMW 328i xDrive (a 2014 model) was $25,034. Go back three years, and the average listing price with the same parameters — that is, a used 2011 BMW 328i xDrive in May 2014 — was a steeper $26,828. That's despite the 2011 model having a lower starting price when it was new ($37,495 including destination) than its 2014 counterpart ($40,250).

A BMW spokesman could not immediately comment on lease popularity for the 3 Series, but the industrywide boom makes sense. Leases involve monthly payments to own a vehicle for a period of time (say, 24 or 36 months), typically with an up-front cash payment and an option to buy the car for the remainder of its value at the end. Since the aim isn't to own the car outright, lease payments are usually lower than payments to buy the same car through traditional financing.

Amid rising new-car prices, their appeal has gained steam. Experian Automotive said the average monthly payment for a new-car loan in the second quarter of 2016 was $499, up 3.3 percent from the year-before quarter. That outstripped wage increases (2.3 percent, per government data) over the same period. The average monthly lease payment, meanwhile, averaged only $404, up 2.5 percent year-over-year — a pace more in line with wages.

 

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