The used vehicle market is showing strong signs of acceleration as tax refund season injects new life into consumer demand, according to the CarGurus Intelligence Report for February 2026. While the new vehicle market continues to face headwinds, the pre-owned sector is experiencing a significant rebound in prices and a tightening of supply, creating a seller’s market as we head into Spring. At the same time, a clear and powerful trend is emerging across both markets: the steady rise of hybrid vehicles.
Demand for used vehicles is off to its strongest February start in years, with the CarGurus Used Vehicle Demand Index climbing over 5% year-over-year. This surge is being driven by consumers armed with tax refunds who are prioritizing affordability. The data reflects this shift, with the share of used inventory in the $15,000 to $25,000 price bracket gaining ground. This activity has led to a notable rebound in used vehicle prices, which are climbing back from their 2025 lows as the spring selling season gets into full swing.
A Seller’s Market Takes Shape
Used vehicle inventory levels dipped in February as tax season sales accelerated. While inventory is still running well above 2025 levels, the market is tightening. The average market days supply (MDS) for used vehicles has fallen year-over-year across all price tiers. This tightening supply, coupled with strong demand, suggests a market that is increasingly favorable to sellers.
Despite the overall market holding steady, a closer look at the data reveals a divergence in inventory age. The share of both newer listings and aged stock (vehicles on the lot for extended periods) is growing. So, while fresh, desirable inventory is moving quickly, some vehicles are struggling to find buyers, a critical insight for dealers managing their lot.
New Market Struggles with Inventory and Affordability
The new vehicle market presented a bit of a different picture than the affordability minded used market. Retail sales were down year-over-year for the fifth consecutive month, marking the slowest February since 2023. A primary cause is persistent cost challenges. Average new vehicle prices are quietly edging back toward the $50,000 mark, driven by a shrinking share of vehicles priced under $40,000. In fact, sub-$30,000 new vehicles now account for just 13% of all listings.
This affordability crunch is happening as new vehicle supply builds faster than demand can absorb it. The MDS for new cars has swelled to 87 days, its highest level since mid-2020. This is particularly acute in higher price brackets, with the $70,000–$80,000 segment hitting an average of 99 days’ supply. While automakers have been clearing out some aged units, the inventory bucket for vehicles on the lot for 100 to 149 days is growing, signaling potential oversupply issues ahead.
The Hybrid Power Shift
Perhaps the most significant long-term trend highlighted in the report is the undeniable rise of hybrid vehicles. The share of new hybrid inventory has increased fivefold since 2020 and now approaches 12% of all new vehicle listings. This reflects a clear strategic pivot from automakers and growing consumer interest in fuel efficiency without the range anxiety associated with pure EVs.
This trend is also visible in the used market, where hybrid inventory is growing, though it still only accounts for about 5% of the total lot. Pricing dynamics in this segment are particularly interesting. Used hybrids have become pricier than their used EV counterparts, yet hybrid prices are still falling even as demand for them increases. It seems that a growing supply of off-lease and trade-in hybrids is helping to moderate prices. In contrast, used EV prices have plummeted, now down 35% since their peak in 2022, following the expiration of federal tax credits that previously propped up demand.
As the industry navigates the spring selling season, the current data points to a clear split. The used market is characterized by robust demand and tightening supply, creating favorable conditions for sellers. The new market, however, is wrestling with an inventory-demand imbalance and persistent affordability issues. Overlaying all of this is the ascent of hybrids, as consumers begin to worry about higher gas prices heading into summer. While seasonality will always influence market trends, current geopolitical and economic headwinds are the variables to watch as the year progresses. The market is moving in the right direction after a slow January, but there’s no telling how the next couple months may shift inventory mix and consumer choice across the automotive landscape.
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