Definition
Depreciation is a measure of the drop in value of property that is owned.
Analysis
Depreciation may be due to wear and tear, poor maintenance or neglect, or it may even be due to external market forces. Oversupply of similar property for sale may cause your property to depreciate at a faster rate.
Depreciation of vehicles is common. A vehicle may be expected to depreciate most rapidly in the first years of ownership. Rapid depreciation, a low down payment and an extended duration of repayment can combine to cause a negative equity situation.
In some housing markets, depreciation may be caused by a glut of homes being listed on the market. Low occupancy rates in a condo development may cause price depreciation. High rates of foreclosure in a neighborhood can also cause property to depreciate.
Ordinarily, land will appreciate over time, gaining value as demand for space increases. Homes and buildings tend to depreciate unless there is substantial upkeep or periodic renovation. Real property tends to appreciate, as the appreciation of the land normally exceeds depreciation of the structure.
