Lease equity declining, signaling shift in used car supply/pricing

Author

Colin Velez
June 21, 2024

Lease equity is down dramatically from last year and is likely to continue its decline throughout 2024, according to new data.

The context: Many consumers who took out a lease during the COVID-19 pandemic, when car prices were closer to normal values, found they had equity near the end of their term due to rapid appreciation. This incentivized many to purchase their vehicle outright, limiting the number of vehicles re-entering the market after lease. 

What this means: Now that lease equity is declining and negative equity is on the rise, lessees are less likely to keep their vehicle, leading to an increase in used car supply. Used vehicle inventory has been so constrained due to high demand that any influx in lease returns could have a major impact on pricing.

How lease equity is shifting in 2024:

  • The average value of lease equity is $2,609, a decline of 50% from 2023’s $5,178.

  • By Q3, Cox Automotive expects lease maturities to drop 16%.

  • Negative equity is on the rise, but only for specific brands. Others continue to see positive equity levels, meaning it will take some time for the dynamics to shift.

Used car supply in May averaged 46 days, up roughly 6% year-over-year. However, inventory levels continue to vary heavily between brands, with some seeing more than 90 days of supply. This has also led to variances in pricing, with preowned cars retaining their values far longer than others.

Bottom line: An influx of lease returns originating from declining equity would add further chaos to this already volatile dynamic, driving up supply and putting downward pressure on pricing. This effect may take time to materialize, but promises to make a significant impact should equity trends hold their current course.

Update: An earlier version of this story incorrectly stated lease equity would drop by 16% by Q3.

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