WHAT IS 'Depressed'

Depressed refers to a state or condition of a market, product or security characterized by slumping prices, low volumes, and lack of buyers. It usually represents a prolonged period of low prices and activity. The term may also be used in the context of the broad economy, in which case it generally refers to severely recessionary conditions. 

BREAKING DOWN 'Depressed'

Depressed prices can usually be found in markets after prices have run up, peaked and subsequently declined for a prolonged period. Prices may remain in a depressed state for months, if not years, depending on the extent to which they had rallied beforehand and the amount of over-capacity or excess supply.

Depressed conditions can be found in many markets. One prominent example was the U.S. housing market after the subprime real estate market burst in 2006. Excessive real estate speculation throughout the 2000's led to a housing bubble. When the bubble burst, millions of homeowners were forced into foreclosure, creating an excess supply of homes that lasted for years. In a severely depressed market, like the U.S. real estate market from 2008 to 2012, the market is defined not just by low prices, but also by low transaction volume.

Examples of Depressed Assets

A period of depressed asset prices can befall any number of asset classes, from real estate to bonds to stocks. The global market for commodities is one market that has recently been depressed. Between 2008 and 2018, the Dow Jones UBS Commodities Index lost more than half its value, reflecting a prolonged decline in demand for raw materials.

Entire economies can also be referred to as depressed, the most famous case being the Great Depression, which lasted in the United States from 1929 until the start of World War Two. Economic depressions are characterized by a severe and prolonged contraction of economic output in a particular economy or economies, and typically lead to excess supply over demand, unemployment, and bankruptcy of private businesses. They are more severe than recessions, which are less pronounced contractions that occur as a regular feature of the business cycle.

Prior to the Great Depression, the most severe depression to affect the United States and Europe was the Long Depression, beginning in the early 1870's, as the result of dislocations caused by the U.S. Civil War, conflicts in Europe and from over speculation and investment in railroad construction.

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