Economic Depreciation

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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.

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