Economic Depreciation

AAA

DEFINITION of 'Economic Depreciation'

A measure of the decrease in value of an asset over a specific period of time. This usually pertains to property such as real estate that can lose value due to indirect causes such as the addition of new construction in close proximity to the property, road additions or closures, a decline in the quality of the neighborhood, or other external factors.

INVESTOPEDIA EXPLAINS 'Economic Depreciation'

In periods of economic downturn and general housing market decline, economic depreciation must be considered in the appraisal of any property. During the credit crisis and housing market collapse of 2008-09, the combination of subprime loans requiring low or no downpayments with the dramatic drop in housing values resulted in a significant amount of the U.S. homeowning population being "underwater" - meaning that they owed more money on their home than it was actually worth.

RELATED TERMS
  1. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  2. Unit of Production Method

    A depreciation procedure used for property that is not in continuous ...
  3. Sum-Of-The-Years' Digits

    An accelerated method for calculating an asset's depreciation. ...
  4. Depreciation

    1. A method of allocating the cost of a tangible asset over its ...
  5. Tangible Asset

    Assets that have a physical form. Tangible assets include both ...
  6. Real Asset

    Physical or tangible assets that have value, due to their substance ...
RELATED FAQS
  1. What are some examples of general and administrative expenses?

    In accounting, general and administrative expenses represent the necessary costs to maintain a company's daily operations ... Read Full Answer >>
  2. How often should a small business owner go through a bank reconciliation process?

    Small business owners should go through the bank reconciliation process at least monthly, and many business consultants recommend ... Read Full Answer >>
  3. Why is a company's Cash Flow from Financing (CFF) important to both investors and ...

    A company's cash flow from financing activities (CFF) is important to investors and creditors because it depicts how much ... Read Full Answer >>
  4. What is the difference between recurring and non-recurring general and administrative ...

    The difference between recurring and nonrecurring general and administrative expenses can best be understood as the difference ... Read Full Answer >>
  5. How can I find net margin by looking a company's financial statements?

    In finance and accounting, financial statements represent the fundamental means of analyzing a company's financial position, ... Read Full Answer >>
  6. What can working capital turnover ratios tell a trader?

    A company's working capital turnover ratio is traditionally positively correlated with business performance. A high, or better ... Read Full Answer >>
Related Articles
  1. Home & Auto

    Closing A Real Estate Deal In A Down Market

    We provide top tips on how to help sell your home in a rough market.
  2. Retirement

    Too Much Debt For A Mortgage?

    Just because a lender is willing to offer you a loan doesn't mean you should take it.
  3. Personal Finance

    How Will The Subprime Mess Impact You?

    The subprime collapse could mean doom and gloom for housing, equities and the overall economy.
  4. Fundamental Analysis

    Understanding Activity Ratios

    Activity ratios measure how effectively a business uses its assets.
  5. Fundamental Analysis

    American Express Returns Vs. DJ Industrial Average

    American Express has handily outperformed the Dow Jones Industrial Average since 2009, but unusual weakness in the last year is taking its toll.
  6. Fundamental Analysis

    Understanding Consolidated Financial Statements

    Consolidated financial statements are the combined financial statements of a parent company and its subsidiaries.
  7. Fundamental Analysis

    Explaining the Common Size Income Statement

    A common size income statement expresses each account as a percentage of net sales.
  8. Economics

    Understanding Historical Cost

    Historical cost equals the original purchase price of an asset recorded on a company’s balance sheet.
  9. Economics

    What's Recorded in a Cash Book?

    A cash book is an accounting book that records all cash receipts and cash payments before they’re recorded in a business’s general ledger.
  10. Economics

    Explaining Capital Reserve

    Capital reserve is an account on a company’s or municipality’s balance sheet that is dedicated to money reserved for long-term or large-scale projects.

You May Also Like

Hot Definitions
  1. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  2. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  3. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  4. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  5. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  6. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!