An increase in supply plus growing incentive activity will push used-car prices down 7.2 percent from current levels over the next three years, RVI Group said in its September Risk Outlook report.

RVI’s lease supply index — a measure of off-lease vehicles in the market — rose 24.9 percent in August compared to the same month last year. Used-vehicle prices, after adjusting for MSRP, decreased by 4 percent year-over-year. And incentive activity increased to 9.2 percent of MSRP for the month.

Lease penetration for the second quarter was 23.2 percent of total sales — the highest level RVI has on record dating back to 1992 — and RVI expects leasing activity will continue to rise.  

Most brands saw a positive change in their lease penetration rate for the quarter. Volkswagen and Land Rover saw the biggest increases while Infiniti and Volvo saw the greatest declines versus a year ago.

Used-vehicle prices (seasonally adjusted, 2- to 5-year-old vehicles) continue to decline on a year-over-year-basis. Real used-vehicle prices (after adjusting for MSRP) decreased by 4 percent when compared to the same month a year ago, and by 1.1 percent on a sequential basis.

All 19 segments RVI tracks saw declines in residual values in August compared to a year ago, and 14 saw sequential declines. Subcompact cars and full-size vans saw the biggest year-over-year drop in residual values at 10.5 percent and 10.3 percent, respectively, while midsize SUVs and luxury coupes saw the biggest monthly declines at 3.8 percent and 2.5 percent, respectively.

The report put a focus on full-size SUV residual values, noting that prices in this segment fell by 3.3 percent year-over-year in August (slightly better than the market average) and 0.4 percent sequentially. The supply of full-size SUVs has been flat over the past two years, but in August supply increased by 3.9 percent year-over-year.

Partly due to a predicted ongoing supply increase, RVI expects used vehicle prices in the segment to fall 8.9 percent below current levels by 2019.