Used Car Prices Approach Records, But Steeper Depreciation, Growing Off-Lease Inventory Offer Some Relief

• Used cars are becoming stronger value purchases as 3-year-old residual values sink to a five-year low of 66%.
• Helping the cause is a projected surge in off-lease availability this year, up a half-million units from 2025, a 25.7% increase. 
• Used EVs in particular represent standout deals and should experience a major rise in inventory through the rest of 2026. 

The only reason used prices didn't top record highs last quarter is the continued drop in residual values: In Q1, 3-year-old vehicles retained just 66% of their original MSRP on average, a five-year low. The falling residual value trend line helps keep used prices in check relative to continuously rising new-car prices. 

Nevertheless, consumers in the used market face significant hurdles. Even if three-year residual values reverted to a historical norm of 60%, a 3-year-old vehicle would still carry a $28,257 price tag. The likelihood of such a drop remains low, as off-lease volumes continue to run well below the traditional levels the industry once relied upon.

Anticipating the growth of off-lease supply

Looking ahead to the rest of the year, the used car market will benefit from a significant influx of inventory as off-lease volumes are projected to rise by 25.7% in 2026, representing nearly a half-million additional units compared to last year. This increase in volume is expected to keep used car prices steady and potentially even bring some minor relief to buyers. A considerable portion of that returning volume is electric. Here’s why. 

As the Inflation Reduction Act drove heightened attraction to the EV market via a $7,500 EV tax credit for new-EV buyers earlier in the decade, automakers’ captive finance companies soon caught on to the ability to pass this same credit on to lessees, bypassing strict manufacturing and buyer income limits. 

Thus, the IRA leasing loophole was born. In 2023, EVs and PHEVs experienced a massive uptick in lease share: 12.4% of all leases from dealerships in 2023 were either fully electric vehicles or plug-in hybrids; 7.6% were EVs alone. Now, those EVs are nearing the end of their lease contracts and hitting the market once again.

2027 will similarly stand to benefit from an increase in lease returns, with an additional roughly 400K units more than even the 2026 mark. This is where the increases in off-lease inventory will end, however. 2025 lease origination was once again rather low as automaker incentives slowed, and 2026 isn’t shaping up any better with Q1 2026 new-vehicle leasing at nearly identical levels as 2025's 20% mark. Without a major shift in incentives toward leasing, we are likely to be stuck in this stifled state of leasing for the foreseeable future. 

Model-level leasing patterns have fundamentally shifted

Disruption in the leasing market is creating ripple effects throughout the industry, with some individual models experiencing even more severe declines in lease take rates. These significant drop-offs are visible across every brand, body style and price tier.

For established nameplates that once enjoyed a steady stream of off-lease inventory, supply is shifting from abundant to nearly nonexistent, a change that will reshape how consumers perceive and approach vehicle ownership. While some drivers may embrace long-term ownership and the responsibility of maintenance, others could face a difficult transition. Consumers trading in vehicles after just three or four years who financed over six or seven years may discover they have little to no equity — or even negative equity — marking a sharp departure from the "walk away" convenience of their previous leasing experiences.

Although overall lease rates have dropped to 20% from their 29% peak in 2018-2019, this short-term transaction type remains an important element of the car market. Looking at off-lease availability through two different lenses reveals distinct market dynamics and varying opportunities for consumers.

First, high-volume nameplates dominate total lease return numbers. Even with lower lease rates today, their massive original sales volume ensures a steady stream of used inventory and stable, predictable resale pricing that closely tracks original projections.

Conversely, models with the highest percentage of leases in 2023 (driven largely by the IRA loophole) tell a much different story. These vehicles are now flooding the market and facing rapid depreciation, driving considerable discounts for used-car buyers. Current market values have fallen so far below original lease contract buyout prices that drivers can save thousands by turning them in and purchasing a similar used model at today's lower market prices.