Ending the mortgage interest deduction during a real estate downturn when few buyers exist will not have much effect on prices because people already aren’t buying. It’ll prolong the downturn a few years but in the long run that’ll be good for economy.

1. Prices will be more affordable for the masses.
2. Our standard of living will increase because owner and renter will have access to the same quality homes, since we no longer favor on over the other.
3. People will save some of their money instead of investing in homes. That money will be available to be invested in factories, research and other productive uses.
4. People will spend some of their money on consumption thus boosting the economy.

It’ll take a few years of adjustment but we’ll be fine. We didn’t have the mortgage interest deduction before and we can do without it again.