I agree with you--the RE industry and related industries will collapse and trigger a recession.
They can make the transition gradual.
Britain went through this ten years ago and the effects of the reduction of the mortgage deduction were nothing compared to the normal boom-and-bust of the housing industry. House prices are in for a fall in many parts of the country anyway if we expect people to be able to afford to buy them. Why not add a change of absolute good to the process?