Fallsreach, a sprawl of handsome homes in the rolling, "recession-proof" hills of the Maryland suburbs, seemed the tranquil embodiment of the American dream one recent balmy weekday. Children Frisbeed. Birds chirped. Spring gardens photo-synthesized.

But just over the crest of a hill, beyond the finished houses, covered in plastic like a corpse, lay the stump of a foundation. All round were other partially finished houses. No more than a handful of workers were busy among the stacks of bricks, floor joists and other materials. The 'dozers and trucks stood silent.

For Fallsreach builder Bob Mitchel, of Mitchell and Best Co., this was the fourth housing slump in 16 years in the business. He knew the industry was in for a real killer this time, he said, when a young couple a month or so ago "just walked off and left a $7,000 deposit laying on the table," a deposit they had given him for a $175,000 home.

"The wife felt they wouldn't be able to cope with the high interest rates. They hadn't been able to sell their other house. We even told them we'd carry the house 30 or 60 days, but they were just too nervous."

The bulldozers' silence reverberates through the lives of Mitchell, his subcontractors, his bankers and others in this industry of hardhats and all-American wholesomeness.

The U.S. economy is in what experts think may be a formidable recession. The auto industry is one of the main soft sectors from which the recession is spreading. This time, as most others, the interest-sensitive housing industry is another.

It is an industry built on a foundation of borrowed money, run largely by small entrepreneurs using an ad hoc work force, and traditionally subsidized as a social good through tax advantages to homeowners.

For the old-timers in the business, this is the sixth round of hard times since World War II. Because of their reliance on borrowed capital, they are usually hit first and often the hardest of any industry. They know it's just a matter of time before the market picks up again.

Meanwhile, they hurt. So do their employes, whom they lay off. So do their suppliers, from whom they buy less. So do their bankers, who sometimes must carry them. And so the economy spirals downward.

Every time one of these economic wrecking bans hits their industry, they say, some of their skilled workers and small businessmen bail out into more stable fields and don't come back, the efficiency of the industry suffers and the price of housing is ratcheted up another notch. As one industry spokesman put it, "You can't turn an industry on and off like a faucet."

Some economists believe, on the other hand, that the housing industry, with its flexible work force and its low overhead, is far better suited to absorb the brunt of a recession than, say, the auto industry, with its huge plants and costly idled machinery.

While such policy debates crackle above them, the builders have hunkered down in the trenches for a spell on frontline combat against the war on inflation.

Mitchell's business, like the industry nationwide, is off about 50 percent, he said. His firm had hoped to deliver 75 houses in four Maryland and Virginia subdivisions for occupancy this year. Now, "If we can deliver 45, we'll be elated."

He had laid off about a third of his employes, he said, and of the unlucky 12, six or seven are on unemployment. He and his remaining employes are forgoing some or all of their salaries.

He has on his hands eight unsold houses "under roof" (mostly completed) and three completely finished.

Mitchell figures it costs him about $75 a day to carry a house unsold. On a construction loan of, say, $100,000 for land, materials, or whatnot, his 22 percent interest rate (on recent loans) means $40 or more a day in interest. "Plus utilities during winter, to keep pipes from freezing, protection against theft and vandalism, and so on.

"A builder's mind set right now is that he could care less about profit," Mitchell said. "The priority . . . is cash flow, to keep yourself in business. . . . We are paying 2 percent above prime. With that kind of interest, any other problem pales in comparison."

The crisis spreads in turn to the craftsmen in roughly the same order as their contribution to the construction of a home.

Gene Cornett, of Gene Cornett Excavating Inc., father of five with 15 years in the business, is the first man on a job. His crews dig the holes in the ground for the foundations.

"Normally, we'd open up 25 to 30 holes for Mitchell and Best alone," he said. "In the last two months we've opened up six holes . . . It's put a hurtin' on us."

Though he had to lay off 12 persons -- nearly half his payroll -- he let go mostly the young, single men, and kept longtime employes with families and mortgages, he said.

"The recession back in '74, that almost put us out of business. This one could do it. . . . That's basically your life. It works on your mind emotionally, to think you might have to give it up."

Herb Reese, sole proprietor of International Dry Wall, headquartered in a tiny office in Rockville, takes over Mitchell's houses when they are skeletons of two-by-fours, and his workers -- dry wall mechanics -- hang sheet rock in 4-by-12-foot sections, each weighing 100 pounds.

Reese said his business has been "devastated."

Married and the father of two, he sputtered in frustration: "I started working as a hanger at 10 bucks a day. I worked for 15 years to build myself up to this, and that man [President Carter] is taking it all away . . . . He's putting efficient businessmen like myself out of business and sinking billions into a mismanaged company like Chrysler . . . ."

He has been busy trying to hustle up some business in less severely hit sectors of the industry, such as commercial office buildings, warehouse painting, "anything."

If his business goes under, like many entrepreneurs in the construction business, he said, "I'll just get my tools out again and go back to work."

Because he is self-employed, Reese noted, he won't be able to collect unemployment insurance like those he has laid off. "I pay them rascals [the government unemployment insurance program] $8,000 a year, and I don't even get any of it."

Jimmie Auvil, 37, is one of the 20 dry wall mechanics whom Reese laid off nearly a month ago. Divorced, he supports his son, Jimmie Jr., 7.

Dry wall work has advantages he likes. "When you're in dry wall, you start at daylight, to beat the heat because you're working inside. You get done by 2:30 or 3 p.m." That allowed him, among other things, to play some baseball with his son before dark.

Now Auvil is on unemployment, and instead of the $300 to $450 a week he usually earns on the job, he is getting $106 a week in benefits.

"If it wasn't for living with my parents," he said, "I'd never make it."

And he has plenty of time to pitch to his son.

There is no really adequate way a builder can plan for a recession, even though they seem to have become inevitable, said Ed Carr, of Edw. R. Carr and Assoc., a relatively large Northern Virginia developer whose father started the business in 1925.

"But we've gotten successively better (at coping with it) through each one. We've learned our own set of strategies."

One, for instance, is to diversify and sell low-cost homes as well as high cost, and to spread projects around geographically, he said, because "different markets react differently -- and unpredictably."

Carr's houses range in cost from 63,500 to 300,000.

What pains the builders also gives headaches to real estate agents, the bankers who supply the capital, to lumber yards and insulators, lawn equipment makers, refrigerator salesmen and so on.

"The next six months will probably be the worst the savings and loan industry has ever had (although) the industry still has a great deal of net worth to live off of," said Dale Riordan of the Federal Home Loan Bank Board, which regulates federally chartered savings and loan banks.

The high cost of money made it impossible for lenders in recent months to offer loans at a rate most people could afford.

Many have eliminated or sharply curtailed their mortgage activities, Riordan said, and simply invested the money elsewhere. Because people weren't putting much savings in the bank (the last couple of months were the poorest in 15 years in that respect), plus other factors, he added, "They didn't have the money to lend anyway."

For instance, said the bank's Warren Rothe, "We might help (home buyers) who can't get financing by giving them a break on the interest rate, and then charging the builder a fee to make up the difference (a practice called 'buying down'). We've done that for a few of our builders."

Builders have been stamping and mailing two-by-fours to various Carter Administration officials to dramatize their displeasure over the government policies responsible for these economic rollercoaster rides they take every few years.

There are nearly 40,000 unsold houses completed or "in the pipeline," and 1.6 million people will be thrown out of work nationwide by October, according to industry estimates.

Administration officials agree that the cyclical swings are destructive, and argue that they held this one off as long as they could, but that their top priority has to be the fight against inflation. While higher-priced housing has been hard hit, one HUD spokesman said, the administration has maintained the flow of subsidies to low-cost housing.

Meanwhile, Mitchell, like many of his colleagues, is trying hard to look on the bright side.

"I love the business, but it takes a lot of tough management during this period. It can be very rewarding . . . You look at a bare lot and then, thanks to you, 60 to 70 people are living in houses there. . . Who the hell wants a business that goes along at the same pace all the time?" CAPTION: Picture, 1, Maryland builder Bob Mitchell and a $160,00 home that he has been unable to sell since the current slump started. By John McDonnell -- The Washington Post; Picture 2, Gene Cornett . . . "it's put a hurtin' on us." By Fred Sweets -- The Washington Post