A surge in long-term interest rates has knocked the wind out of the home loan business.

Lenders and analysts say that applications for new mortgages have fallen sharply in the past month as rates on fixed mortgages jumped to an average of 7.8%, from 7%

The slowdown has all but killed a refinancing boom that began developing early this year. And some industry professionals are fretting that conditions won't improve in the spring, traditionally the strongest season for homebuying.

"We've definitely taken some hits," said Jason Bohrer, executive vice president at American Home Funding, Richmond, Va.

Investors in mortgage banking stocks have clearly taken notice, causing the shares to decline much faster than the market as a whole (story on page 25).

Mortgage interest rates have been rising in response to the jump in long-term Treasury yields. Those rates, in turn, have been lifted by signs that the economy is growing more rapidly than expected.

The upshot: Applications for new home loans skidded 16% in the week ended March 8, according to the Mortgage Bankers Association of America. Applications for refinancings were especially soft, falling more than 30%.

If the trend continues, the spring buying season may be a washout, industry observers said.

April and May usually are strong months because people prefer to shop for homes in warm weather, said Jay Shackford, spokesman for the National Association of Home Builders.

Also, families traditionally like to buy homes during this period because it allows them to settle in during the summer, Mr. Shackford said. "People, generally, if they have school-age children, do not want to move in the middle of the term."

But the higher rates "can't help home sales, even if it's the spring buying season," said David Lereah, chief economist of the Mortgage Bankers Association.

Interviews with mortgage bankers nationwide found nearly all saying originations and refinancings had dropped in recent weeks.

"We have seen a slow-up from the pace that we had at the first of the year," said R. Frederick Taylor, president of Huntington Mortgage Co., Columbus, Ohio.

Refinancings, rather than loans to buy homes, have been hurt the most, he said. "Refinancings are much more discretionary transactions," he said, "and as a result, people must be pulling back."

Still, Huntington Mortgage is not yet ready to write off the spring buying season.

"It's too soon to say if there is any lasting impact from the upheaval that's occurred in the market in the last few weeks," Mr. Taylor said.

Aside from crimping new business, higher rates imperil thousands of "pipeline" loans that have been approved but not yet closed. Customers may now want to pull out of these deals, hoping to come back when rates have settled.

"The obvious concern is if you now have a lot of fluff in your pipeline," said an East Coast mortgage banker.

That apprehension prompted CoreStates Mortgage Services Corp. to mount a preemptive strike last week. It spent three days calling every customer who had a loan in the pipeline, said Patrick Yoder, senior vice president.

"We were concerned," he said, "and our strategy was to get loan officers on the phone immediately." In their discussions, the officers described options available to customers in light of increased rates.

"You don't throw your hands up in a market like this," Mr. Yoder said. "You need to aggressively consult with customers."

Indeed, mortgage bankers said the jump in rates had not packed enough of a wallop to alter hiring and expansion plans.

"We don't see any reason to cut back," said Mr. Bohrer of American Home Funding. "We continue to open new branches."

And other mortgage bankers are betting that the current environment won't last.

"I believe rates will come back down," said Joel A. Brotman, senior vice president at Poughkeepsie Savings Bank. "The fundamentals of the economy don't justify the spike."

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