Used car prices are falling for the first time since 2008

Used car prices look set to suffer their first meaningful decline since 2008. And the likely culprit is the strong number of new vehicle sales.

According to "NADA Used Car Guide," used car prices will fall 5 to 6 percent this year. And while some may be tempted to draw from that negative conclusions about the U.S. economy, NADA executive analyst Jonathan Banks explains that the drop is reflective of rising supply, rather than falling demand.

"2016 marks the first year where we have a material increase in used supply," Banks said Friday on CNBC's "Trading Nation."

He explains that recently, record-high used car prices have been spurred by a lack of used car supply, which in turn was caused by low new vehicle sales as a result of the recession. That trend is now reversing.

The supply of used cars "is driven by 2013 lease returns coming back into the market, which represents about an 800,000 increase compared to 2015," Banks said.

In that way, the drop in used car prices is "a byproduct of the strong new vehicle sale success we've been having."

So will used car prices continue to drop, as cars that were leased when new continue to come back onto the market?

It's possible, says Banks, adding that "one of the wildcards is the new vehicle incentives."

There is "more risk" of lower prices "if there's a continuation of the incentives that are stoking new vehicle sales," he said.

Read More European car sales rise 5.7% in March but Volkswagen brand dips


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

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