Used Market Liftoff Likely Happening This Week

The IRS caught up with statistics on tax filings and refunds through Friday, February 21. As of then, tax returns filed with the IRS were down slightly (0.1%), but the number of refunds was down 2.9%. The average refund was also down (0.6%). We were a bit more than a third of the way through tax refund season as of February 21, but refunds are coming in a bit slower this year. The slower issuance of refunds was evident through Friday, February 14, as normally that week would have seen the first big jump in refunds, but this year that jump came the following week.

Momentum is definitely picking up in the latest data. The week ending February 21 saw the largest week-over-week jump in the number of refunds as well as the largest jump in weekly refund dollar amounts going back to at least 2014.

When we get to 50% of filings processed, we expect that total refunds will be up over last year along with the average refund amount. We base this expectation on growth in the labor market, growth in wages and incomes, and growth in tax withholdings.

The average refund and totals should improve in the next week of data received as more returns eligible for refundable tax credits will have been processed.

The sales jump also seems to be lagging with the refunds. Retail used-vehicles sales through week 9 this year have not yet exhibited the characteristic jump that signals the beginning of the key buying period.  Week 9, which ended this past weekend, saw an uptick, but the increase in sales was not like the same week in the prior two years.

The trend in sales suggests that this current week is the liftoff week, and the jump in used sales is likely to be stronger than last year. This is also the week where the majority of tax refunds will have been sent.

After liftoff, we expect the spring used car market to last for 7 to 9 weeks. This year’s peak demand will likely last until mid- to late-April.

Wholesale used-vehicle prices did move up in week 9. After a slight uptick of 0.3% on the three-year-old Manheim Market Report (MMR) Index two weeks ago, last week saw a jump in values of 0.7%. This was the strongest start to the spring bounce since 2014. With only a small rise in used retail sales activity, the latest increase in values was a function of dealers replenishing and adding to inventory ahead of the season.

Weekly updates are being provided through tax return season.