With mortgage interest rates falling to their lowest levels in nearly 10 years, Lou and Pat Ward decided to put their $98,000 Alexandria town house on the market and look for a larger home.

So a week ago Thursday, they hammered a For Sale sign into their front yard. In just a couple of days, they had received calls from 25 interested parties. On Sunday morning, their house sold for the full asking price.

"We were going to look in the fall, but the market speeded up our decision," said Lou Ward, who added that the lower mortgage rates also will make it possible for the young couple to pay a higher price for their second home.

At the residential appraisal offices of Thomas J. Owen & Son, President Whit Kidwell has seen the daily number of appraisal requests increase from 10 to 20 before January to 60 to 70 at the moment.

"I'm turning away so much business," Kidwell said. "I can't handle it."

The termite and home inspectors have more work than they can handle, too. Ditto for the loan processors at the Federal Housing Administration and the Veterans Administration.

Welcome to the 1986 housing boom in the Washington area. It is an almost giddy flight of fancy at the moment for home buyers and sellers and anyone connected in any way with the housing industry. Real estate professionals are euphoric over the turn of events fueled by the lower mortgage rates.

Sellers like the Wards are, too, at least until they, in turn, try to go buy another house. It is then that they encounter reality, that lots of other Washingtonians also are trying to buy a home and that many houses, even less desirable ones, are selling at boosted prices.

By 1 p.m. on the day the Wards sold their house, they were out driving around North Arlington in search of a new home. The Wards quickly realized, however, that with thousands of other house-hunting Washingtonians trying to capture today's low interest rates, their task of finding a new home wouldn't be nearly as painless as the quick sale of their Alexandria town house.

"Everything we like is sold," Lou Ward said. "It's amazing, even the places we wouldn't consider living in are selling." He added that they toured an Arlington house last week that had prospective home buyers waiting in line to enter.

Ann Lunger, a real estate agent with RE/MAX Distinctive Properties, said it is not unusual for a house in good condition and not overpriced to have three to five contracts placed on it, some from people willing to pay more than an owner's asking price.

"It's a very active market. It's quietly hysterical at some points," said Lunger, who had more than 60 people turn out last Sunday for the opening of a $150,000, 45-year-old Arlington house that was listed as needing some work.

With interest rates now generally below 10 percent, many Washington homeowners are rushing to refinance their high-rate mortgages. But others are jumping at the chance to move up to newer and larger houses, particularly young couples who bought their first home during the past few years when interest rates were high. They are quickly discovering that the low rates give them strong buying power to afford higher-priced homes. But many buyers are now competing with each other for available housing, especially in desirable neighborhoods.

Kate Holmberg, who owns a cooperative apartment in North Arlington, said she has been "aggressively" looking for a new home for more than a month. But she said an affordable house in a neighborhood close to Washington is hard to find.

"The lower rates are fine, but home prices have gone up. There's nothing for $125,000 in North Arlington now," she said.

The low interest rates also have made it possible for others to consider owning a home for the first time.

Dave Cordova, who rents an apartment at 22nd and M streets NW in the District, said the low rates "have been a motivating factor" in his search for a Washington condominium.

While many in the real estate industry prefer the boom to the bust, some are leery of the effects that the onslaught of buyers and refinancers are having on the market. Most real-estate-related professions were caught off guard by the lower mortgage rates, which began falling sharply in January. As a result, most sectors of the industry now find themselves overworked and understaffed in their attempt to handle the new-found business.

Mortgage companies have been especially hard hit by a combination of the deluge of refinance applications and new mortgage requests. Some firms have temporarily stopped taking refinance applications in an attempt to process their enormous backlogs.

Philip Mahoney, regional vice president for Cameron-Brown Co., said mortgage applications are coming in at a rate of three to four times more than normal. About 60 percent of the applications are from refinancers. "I don't see a frenzy that I saw a month ago," said Mahoney, who added that a slight decrease in the number of mortgage applications and the additional 10 loan officers he hired has helped to ease the recent crunch.

But he quickly stressed that if rates should go down more, or even start to rise, lenders should expect "another big influx" of applications from people who are now watching the market to see what happens.

Like conventional lenders, the FHA and VA home-loan-guarantee programs also are being besieged with mortgage applications. Gilbert Meza, a spokesman for the regional office of the U.S. Department of Housing and Urban Development, said his agency is receiving 600 FHA loan applications daily, which has created a backlog of thousands of loan requests.

James Nalitz, loan-guarantee officer for the VA's Washington regional office, said last month that his office was getting 1,200 requests each week for appraisals, a required step for approval of VA-backed loans. Since then, the VA has changed its internal loan-processing procedure. During the first week of the VA's new mail-in procedure, more than 3,100 requests were received. Nalitz added that that figure is now averaging about 1,600 each week, which is about 1,400 more than normal.

As a result, Nalitz said it takes about eight weeks for the appraisal process to be completed. "By next month, it'll take 12 weeks," he said, because of the growing backlog of applications.

A number of private, industry-related companies are also experiencing a flourishing business thanks to the low interest rates.

Thomas J. Owen's Kidwell said that in normal times his workers appraise three to four houses daily. Today, "I'm giving them 12 a day, and they can't handle them all," said Kidwell, who added that the appraisal process that usually takes less than a week to complete is now taking two to three weeks. "And that's on the increase -- the workload is ungodly."

Even termite-inspection companies, whose services are required to obtain a VA or FHA loan, are getting more business than they can handle.

J. W. Bumbaugh, regional manager for Terminix International, said the number of termite inspections needed for the approval of a mortgage application increased by 51 percent last month. He added that because of the thriving real estate market the days of being able to order an inspection within a few hours are now gone.

"It'll now take a week to a week and a half," Bumbaugh said.

John J. Heyn, a home inspector whose company examines houses for needed repairs before a buyer finalizes a purchase contract, said, "It's been the best several months in 15 years."

Because of the current sellers' market, some homeowners now are able to sell their house without any conditions placed upon the purchase, such as a home inspection. But that worries people like Heyn.

"I can't imagine an intelligent person spending $200,000 without taking the step to see what they are getting," he said.

With the market booming, some are seeing an opportunity to make money as a real estate agent. Consequently, enrollment at many of the area's real estate training schools has increased.

Michael Briggs, education director for Shannon & Luchs, said enrollment in his firm's pre-license real estate course was up 50 percent in March over the same period a year ago.

He added that some enrollees "have a perception that all real estate agents make a lot of money and they want to get in on it." In addition, enrollment in continuing education courses by current agents who are trying to keep up with market changes has also increased, Briggs said.

Washington-area builders are also reaping the benefits of the strong market.

D. T. Noakes, president of Winchester Homes, said orders for new homes have nearly doubled during the first quarter of 1986 over a similar period of last year.

Noakes added that because of the backlogs in the mortgage-approval process, many new houses remain empty until a loan is finalized. In some cases, Noakes said his homes have been empty for up to a month, which he said costs him interest money.

"But we'd rather contend with these kinds of problems than 20 percent interest rates and no buyers," said Noakes, whose company is currently building 1,000 residential units in 24 suburban Maryland sites. "This is a great time for us in the home-building industry."