Right. That makes more sense to me. In dollar terms the prices go down. In value terms, they sky rocket. Cheaper houses that no one can afford would be my guess at what would happen as well.
I really hope that doesn't happen and I don't think it will for more than a few years. People react harshly to news - they think there is more significance than is really there.
I think the most likely result is that mortgage loans are going to see stratification in price - borrowers with high salaries and good credit histories are going to see little to no negative change with possible positive change; borrowers with low salaries and poor to mediocre credit will see loans they can't afford.
Partially, this came about because we (and by "we" I guess I mean US politicians) wanted to extend home ownership to more people - specifically historically disadvantaged people who didn't have access to the loan terms that those brought up as upper-middle class have access to. It's a laudable goal and one that we should try again in the future (albeit in a different way).
Since someone will probably ask what other way: One example of that would be to allow double deductability of mortgage interest to a certain mortgage value. So, let's say median home value is 300,000. If you allow a double deduction up to 150,000 in value, people with the median home see no change. People buying lower-valued homes see a positive increase in their ability to purchase that home - and that positive increase is paid for by the rich people in million dollar homes who can't deduct all their mortgage interest anymore.
Macroeconomics is complicated. My best advice is to be prudent yourself, live within your means, and not get caught up in the trends of people who think the economy is collapsing or that golden ages will never end.
