Key Index Takes Sudden Downturn

The index on which adjustments in the conforming loan limit are based dropped sharply in August, ending a string of almost steady increases since the last modification.The decline in the index of the average price of homes sold -- from $177,100 in July to $172,600 in August -- is being taken by at least one observer as a sign that the housing market has peaked. "I'm not surprised to see some pullback," said Fred Flick, an economist at the National Association of Realtors. Noting that 1997 has been a record year for existing home sales and an "extremely strong" one for price appreciation, Mr. Flick said it is only a matter of time before sales slow and prices begin to drop back. The index, maintained by the Federal Housing Finance Board, is used to calculate the ceiling on single-family loans that can be purchased by Fannie Mae and Freddie Mac. The current ceiling of $227,150 was based on a 5.8% increase in the index between October 1996 and October 1997. It represents a $12,550 increase over the 1997 maximum. Changes in the limit become effective on Jan. 1 of the following year. The average for this October will be announced in late November.