In a land of driving, both a bifurcated housing market and car buying market

Americans like to drive and have structured much of daily life around driving. This means many people need a reliable car to get to a decent job, which then enables them to buy a decent home in a place they want to live. But, what if both the house and car buying markets do not provide a lot of good options at lower prices? From the auto industry:

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Yet that increase was nothing next to what happened in the used market. The average price of a used vehicle surged nearly 14% — roughly 10 times the rate of inflation — to over $23,000. It was among the fastest such increases in decades, said Ivan Drury, a senior manager of insights for Edmunds.com.

The main reason for the exploding prices is a simple one of economics: Too few vehicles available for sale during the pandemic and too many buyers. The price hikes come at a terrible time for buyers, many of whom are struggling financially or looking for vehicles to avoid public transit or ride hailing because the virus. And dealers and analysts say the elevated prices could endure or rise even further for months or years, with new vehicle inventories tight and fewer trade-ins coming onto dealers’ lots…

Charlie Chesbrough, senior economist for Cox Automotive, predicted a tight used-vehicle market with high prices for several more years…

In recent years, automakers had set the stage for higher prices by scrubbing many lower-priced new vehicles that had only thin profit margins. Starting five years ago, Ford, GM and Fiat Chrysler (now Stellantis) stopped selling many sedans and hatchbacks in the United States. Likewise, Honda and Toyota have canceled U.S. sales of lower-priced subcompacts. Their SUV replacements have higher sticker prices.

On the housing side, builders and developers have devoted less attention to starter homes. It can be difficult for some workers to find housing near where they work. The ideal of the suburban single-family home is not attainable for all.

On the driving side, cars are not cheap to operate and maintain. Moving to the suburbs and many American communities requires a commitment to driving to work. A reliable car at a reasonable price could go a long ways to keeping transportation costs down and freeing up household money for other items.

These issues require longer-term planning and attention: how can people with fewer resources still obtain decent housing and decent transportation options? COVID-19 may have exacerbated these issues but the article about the auto industry suggests these trends were already underway; car prices were on the upswing. Trying to tackle density issues or providing more mass transit are difficult to address in many communities and regions. A conversion to electric cars in the next decade or two sounds good but imposes new costs on drivers.

In the meantime, those with resources can likely pick up better options for both cars and homes. These choices can then have positive cascading effects on future spending and outcomes.

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