Dr. Larry Jackson, a Georgetown University medical researcher, has become a squatter in the $141,000 Fairfax County home he had hoped to buy.

"We've struggled 21 years for this house," says his wife Sandra, who years ago worked as a nurse to put her husband through medical school. "I've paid for every board in this house with my stomach lining and my tears."

Their dilemma: Despite Jackson's $50,000-a-year salary, sharp increases in mortage interest rates have imperiled the family's financing arrangements. They now live day-to-day in their dream house, afraid to unpack their belongings and unsure whether new financing will be approved, guaranteeing them ownership.

The ecomonic forces that have thrown the Jacksons' lives into turmoil are affecting thousands of families in the Washington area as high mortgage interest rates begin to choke what has been touted as the nation's only recession-proof housing market.

Nowhere is the impact being felt more sharply than in Fairfax County, which last year accounted for more then 40 percent of the new housing in the Metropolitan area.

Interviews with home buyers, sellers, realtors, builders, lenders and others in the Northern Virginia housing market have turned up widespread evidence that many are already beginning to feel hardships resulting from the federal government's recent credit-tightening moves.

Home builder Michael Sorensen, head of the family-owned Sorensen Construction Corp., says the mortgage rates could knock his $8-million-a-year company out of business by the end of the year, forcing layoffs of dozens of independent contractors. "It could be a very slim Christmas for us this year, and through the winter," he says.

Dozens of area real estate salesmen also could be squeezed out of the market, say Katharine Elder, who has been selling real estate in Northern Virginia for the last 10 years. "We're going through some of the scariest things I've ever gone through in the real estate business."

Many home buyers who contracted to buy homes before the recent interest rate surge are now finding, to their dismay, that their monthly payments may amount to hundreds of dollars more than original estimates -- if their deals hold up at all.

Sandra Jackson and her husband Larry, who saw their promised 10 percent mortgage loan climb to 11.5 percent and then 12 percent between August and November, sold their home in Springfield with the assurance of financing for their five-bedroom colonial "dream house" in an affluent Vienna neighborhood.

Then they learned that the rising interest rate had pushed the Vienna house payments beyond the point considered acceptabel by their lender, based on Jackson's income. Meanwhile, the purchasers of their Springfield home were ready to move in.

With no place to go, the Jacksons managed to talk the owner of the Vienna home into letting them live there on a day-to-day basis until a financial contract could be worked out. Then they put together a mortgage package with a new lender that will cost them 20 percent more per month than the $1,096 they had figured on in August, when they first decided to purchase the home.

Even so, they have no guarantee that they may not be ejected some morning. Until they get Veterans Administration approval for their new loan package -- which has not been assured -- Sandra Jackson says she won't feel comfortable unpacking, buying drapes or hanging pictures on the walls. $"When I run into old friends and they ask whether we've moved to our new house, I hate to mention any of this," says Mrs. Jackson, who now suffers nightmares about faceless intruders who force her from her home and rip up her belongings. "You start to feel like you've done something wrong."

But Mrs. Jackson is firm in her bellief that the fault lies in the mortgage money market. "As we were sitting in one lender's office, he got three calls from people who were in the same position," she says. I see the same thing happening to everybody, and I wonder: Is it going to be another depression?"

Real estate agents say the tightening of the money market has been accompanied by a new emphasis on mortgage paperwork, along with a corresponding disappearance of new customers. Instead of showing property to prospective buyers, they say, they have their hands full coping with shorter deadlines imposed by lenders to keep pace with the interest rate.

"I wish I could tell you how many hours I've spent in the last couple of weeks on this kind of stuff -- more than I can count," sighs Margaret Dyer, who reports she is now hand-carrying routine forms between buyers and lenders. "With all the money deadlines we've got now, one lost form could kill a whole deal."

Dyer, a realtor for Long & Foster, one of Northern Virginia's major real estate firms, says the credit crunch is cutting into her business, costing her twice as much time for each real estate deal she can complete. "It's causing me a great deal of frustration and a lot of tension. I've had a continual headache for the past week," she says.

The future, she believes, looks bleaker than the present. October sales were only slightly below par because most were based on deals made long before the latest interest rate hikes. But current business indicates that November's figures are taking a nosedive, Dyer says.

Unless she can keep coming up with creative ideas on financing she could find herself out of a job. "It's like a chess game, and you have to wait to see how the pieces fall down to see what you're going to do," Dyer says. "It's frustrating, but I'll stick with it."

Michael Sorensen, whose company built $8 million worth of single-family housing in Prince William County's Lake Ridge area last year, blames his difficulties on government policies aimed at capping inflation. $"You bet I'm angry," he grouses. "I guess you could say we're getting screwed, and the people who are buying are getting screwed, too. I don't believe these mortgage rates have helped cut inflation at all. All they've done is drive up the price of my houses."

Some of those who already have signed contracts on new Sorensen homes now are trying to get out of their agreements, he says.

"I've had people coming up with all kinds of excuses to get out of their contracts -- they're getting divorced, they're getting transferred," says Sorensen. "I take it all with a grain of salt, but I know many of them are fabricated excuses."

If the company does stay afloat, Sorensen says, it most likely will be forced to cut back on housing starts by almost half, which would throw dozens of persons out of work. But given the unsteady economic situation, he finds predicting the future increasingly difficult.

"We don't know what to do," Sorensen says disconsolately of the firm his father started 30 years ago. "We're really kind of running scared. We really hate to commit ourselves."

Lawyers who handle real estate closings also are feeling the effects of the market slowdown. Some say they believe there will be a cutback of up to 40 percent in the caseload in Northern Virginia. But at least one attorney sees a side effect.

"Let's face it: personal litigation will go up. People get owly; They're nervous and uptight, so they kick each other around more, says Fairfax real estate lawyer Walter H. Lockowandt.

"I had a guy in here -- the interest rate had gone up one percent since he bought his house. He ended up paying $150 a month more than he thought he would.

"All the way along, he was biting the bullet. I could tell that some time down the road somebody's going to catch flak from that guy."

Perhaps the hardest hit, say experts, are those who choose to sell their homes themselves. Many of these sellers cannot offer assumable mortgages at low mortgage interest rates.