The worst-case speculation regarding adjustable rate mortgages always assumes an increase much greater than the less-than-7% rate cited here. They'll just refi into another 3/1 ARM at about 5.5%. Not a huge hit to the bottom line in the majority of households.
Capping the mortgage interest deduction won't get any further than similar proposals got in 1993. That sacred cow ain't getting slaughtered any time soon, so speculating upon the effects of such a cap is highly premature.
That's assuming that interest rates will stay at the point where you can get a 5.5% ARM. That's also assuming that you can get an appraisal that covers the existing loan balance, and the closing costs to do the refinance. Nobody's going to come up with 3 to 4% of a $200K-plus loan out of their own pockets just to keep the balls juggling in the air for a few more years.
A couple of pretty big assumptions there.
Good post.