Buying a car continues to be a costly endeavour in Canada, with the price of used and new vehicles reaching new record highs in May, according to Autotrader.
Autotrader said the average price of a new vehicle in Canada reached $54,048 in May, a 17.3 per cent increase from last year and up slightly more than 1 per cent from April, when prices last hit a record high. The cost of a used vehicle also increased in May, reaching an average price of $37,984, up 36.4 per cent from 2021 and nearly 1 per cent from the previous month.
"We're still seeing in the market a supply and demand mismatch, so prices have remained on the higher side," Baris Akyurek, Autotrader's director of analytics, said in an interview.
Vehicle prices have been on a tear since the COVID-19 pandemic struck and disrupted supply chains, leaving dealerships with depleted inventories as demand surged and more people turned to private vehicle ownership.
The price increases have been especially prominent for larger vehicle categories, including light-duty trucks, SUVs and minivans. For example, the average price of a new minivan in Canada hit $59,592 in April, a 44.2 per cent increase from the previous year. Autotrader said minivan prices in particular increased at a faster rate than the cost of trucks (up 13.2 per cent year-over-year) and SUVs (up 12.2 per cent year-over-year) due to a 56 per cent annual decline in inventory.
One province that saw used vehicle prices surge at a faster rate than other regions is Quebec, where used cars are typically cheaper than in the rest of the country. Akyurek said anecdotal evidence suggests that dealers from outside the province have been purchasing vehicles from Quebec as a way to boost inventory and meet increasing demand levels.
Where prices are softening
Despite soaring prices, there are signs the market might be starting to normalize, Akyurek said, as the average price of vehicles declined on a monthly basis in British Columbia, Manitoba and Saskatchewan. While the decreases were small (0.9 per cent in B.C. and 0.4 per cent in Manitoba and Saskatchewan), it is the first decline seen in Canada in months.
"We haven't seen a month-over-month decline in a while, so we believe that prices are probably at the peak or very close to the peak and that there is going to be some sort of normalization starting pretty soon," Akyurek said.
Canadian Black Book, which tracks vehicle prices, echoed that sentiment, and said wholesale vehicle valuations have finally hit "a blip" after 20 months of record growth. The company's used vehicle retention index, which measures used prices compared to the original price, remained flat in May after posting a decline in April.
“Given wider inflationary trends throughout the economy, skyrocketing gas prices, and rising interest rates, any relief in prices is a welcome sign. That said, our expectation at Canadian Black Book is that wholesale prices will remain high well into 2023," James Hancock, Canadian Black Book's director of analytics, said in a statement.
"We anticipate 2022 to see a plateau for prices, with a gradual decline over the next couple years. However, prices are expected to remain well above pre-pandemic levels into 2026 and possibly beyond."
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.