DEFINITION: “Appreciation” is an increase in the market value of a good over time. It is the opposite of “depreciation.”
ETYMOLOGY: The noun “appreciation” and the related verb “appreciate” derive from the Late Latin past participle, appreciatus, of the verb appretio, appretiare, meaning “to appreciate.”
The Late Latin term was assembled from the classical Latin preposition ad, meaning “towards,” and noun pretium, pretii, meaning “worth,” “value,” or “price.”
USAGE: The term “appreciate” entered English around the turn of the seventeenth century. It is thus closely associated with the development of long-distance trade routes and the consequent take-off of the market economy that occurred during the Renaissance.
These historic trends began somewhat earlier south of the Alps, in the Mediterranean countries, especially in Italy, and then moved north of the Alps over the course of the sixteenth and seventeenth centuries.
The phenomenon of appreciation must be understood in the context of the subjective theory of value.
In a nutshell, appreciate occurs whenever demand increases for a type of commodity whose supply is being held steady or is growing more slowly than the demand.
The classic example of appreciation is real estate. Homes appreciate within a particular market when an increase in demand for housing in that market outpaces any increase in the supply of housing stock.
For example, a population influx into an area that occurs at a faster rate than new housing stock can be produced would lead to appreciation of the existing housing stock.
Other common examples of commodities that may appreciate include precious metals, such as gold, art objects, and other goods for which demand tends to increase over time but whose supply is severely limited.