Edmunds sees off-lease inventory surge lowering used car prices
If you have been waiting for used car prices to cool down, the latest data from Edmunds suggests your patience could start paying off soon.
Three-year-old vehicles reached an average transaction price of $31,548 in the first quarter of 2026, just below the all-time high set four years ago.
The number looks alarming on its own, but the story underneath it tells a very different tale for shoppers who dig into the details.
Residual values on those same vehicles have dropped to their lowest point in five years, and a flood of off-lease returns is projected to hit dealer lots throughout the rest of this year.
Used car residual values hit 5-year low despite near-record prices
The average price of a three-year-old used vehicle in the first quarter sat just below the all-time high, trailing only the $32,164 peak from the first quarter of 2022, Edmunds reported.
That near-record figure obscures a critical shift happening below the surface that currently favors buyers over sellers in the months ahead.
Residual values for three-year-old vehicles fell to just 66% of their original manufacturer's suggested retail price during Q1, which marks the lowest retention rate in half a decade, the report found.
Fourth-quarter auto financing trends clearly illustrated the challenges faced by car shoppers in 2025, said Edmunds Director of Insights Ivan Drury.
...Many consumers were forced to adapt by financing larger amounts, stretching loan terms and, increasingly, taking on four-figure monthly payments.
The declining retention trend is the primary reason Q1 used car prices have not yet eclipsed the Q1 2022 record. The gap between what a vehicle originally cost and what it sells for three years later continues to widen.
Even if residual values reverted to a historical norm of 60%, a three-year-old vehicle would still carry a price tag of around $28,257, according to Edmunds data.
"Entering 2026, many of the affordability pressures that defined 2025 are still in place, including elevated new-vehicle prices and ongoing economic uncertainty," Drury said in a January statement to Autoblog accompanying Edmunds' fourth-quarter 2025 financing data.
Off-lease inventory projected to surge by 25.7% this year
The biggest catalyst for potential price relief is a wave of vehicles returning from lease contracts that will add substantial supply to dealer lots across the country.
Off-lease volumes are projected to increase by 25.7% in 2026, adding close to half a million units compared to last year, according to the Edmunds Q1 2026 report.
That influx traces back to a leasing boom fueled by the Inflation Reduction Act's $7,500 tax credit for new electric vehicles earlier in the decade.
Automakers' finance arms found a way to pass the credit to lessees by routing purchases through commercial channels, which bypassed income and manufacturing restrictions on the subsidy.
The result was a sharp spike in EV and plug-in hybrid leasing during 2023, when 12.4% of all dealership leases went to EVs or plug-in hybrids, and 7.6% were fully electric vehicles, according to the Edmunds analysis.
Those three-year contracts are now expiring, and the vehicles are flowing back into the secondhand market at a pace that could apply downward pressure on prices.
Used electric vehicles offer the steepest discounts for shoppers
The most dramatic price gaps are showing up among electric vehicles that were heavily leased during the tax credit era and are now returning to market at valuations far below their original prices.
Models with the highest lease penetration rates in 2023 are experiencing rapid depreciation, resulting in real savings for used-car buyers, according to the Edmunds report.
The Mercedes-Benz EQS, which had an original lease MSRP of $127,526 and an 82% lease rate, is now selling for an average of $49,290, roughly $16,880 below the $66,170 resale value lenders originally projected, according to Edmunds data.
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Five-year-old electric vehicles are now depreciating at an average rate of 57.2%, compared to 41.8% for the overall market, according to an iSeeCars analysis of more than 950,000 transactions between March 2025 and February 2026.
That spread creates a window in which buyers can acquire luxury and mainstream EVs at a fraction of their original sticker price.
"This recent reduction in 5-year depreciation rates suggests rising used car demand and/or insufficient supply over the past 12 months," Karl Brauer, executive analyst at iSeeCars, said in the firm's 2026 depreciation study.
Where the market goes from here for used-car shoppers
The forces reshaping the used market in 2026 carry an expiration date. The off-lease wave driving this year's price relief traces back to the 2023 leasing boom, and a similar bump is expected in 2027, but Edmunds warns that the pipeline largely runs dry after that.
The reason is that new-vehicle leasing has collapsed from its late-2010s peak and shows no sign of recovering, with current lease rates running well below the levels the industry once relied on.
Fewer leases signed today means fewer off-lease vehicles returning to dealer lots in three years, setting up a tighter used market once the current returns are absorbed.
For buyers, that reframes the present moment as a temporary opening rather than a permanent correction. The discounts available now, especially on heavily leased electric vehicles, reflect a one-time flood of returning inventory rather than a structural reset in used-car pricing.
Consumers who finance vehicles over six or seven years, meanwhile, risk ending up with little or no equity when those loans outlast the vehicles' depreciation curve.
Related: Edmunds reveals stunning new auto debt trend hitting U.S. drivers
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This story was originally published May 28, 2026 at 3:17 PM.