UPDATED 05/10/11 6:56 p.m.

CHICAGO (CBS) — While the cost of homes is dropping, the cost of used cars is going up.

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As CBS 2’s Derrick Blakley reports, bargains are scarce in what was once a bargain shopper’s paradise.

The price of a particular used car is supposed to go down every year.

It’s called depreciation.

Not anymore.

A severe shortage of used cars has sent prices skyrocketing– with buyers experiencing sticker shock.

Ramon Valle of Darien is shopping the car lots, looking to downsize to escape the gas price squeeze.

He just got caught in another price squeeze, with used car prices going up. It’s forcing him to question the best deal: new or used?

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“That’s my dilemma right now. Which way will I go, will I go for a used car or a new car,” he said.

It’s a dilemma because used car prices are at their highest levels ever.

“Used car prices are skyrocketing, especially on fuel-efficient vehicles,” said Jason Roberts of Advantage Chevrolet.

Cars. com says average used car prices are up 10 percent in the last year. Some vehicles are up much more, including Hyundai, up 22 percent, Mercury, 19 percent and Ford 14 percent.

“They’re huge increases and people when they think of used cars think they’re going to be cheaper year after year,” said Patrick Olsen of cars.com. “We’re in this weird vortex where it isn’t happening.”

It’s basic supply and demand. The availability of used cars is down, way down. The cars for clunkers incentive program made used cars scarce. After the Japanese earthquake, dealers are now paying up for small used cars to replace new cars they can’t get.

That means, as car shopper Larry Mitch found, used cars prices are looking at lot less used.

“They are, they’re getting close to new car prices,” Mitch said. “That’s what i see.”

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“In some cases, it may be better for a consumer to go with a new car with better financing than a used car whose price is higher than it normally would be,” Olsen said.