Could you clarify a few things in your post?
Are you paying for a new house in full, e.g., no mortgage?
Is that what you mean by saying, you're losing the credit you may need in retirement?
I'm not sure I can agree with your definition of 'real wealth'. My home is worth 25% less than at its peak, which fortunately doesn't mean much because we have no mortgage, nor any immediate plans to sell. If we did want to sell, we would have to invest some money to get it into tip-top shape, and go through the hassle/expense of selling in a buyer's market. To get the best price we'd need to carry a first or second, which would involve an attorney (never cheap, not in CA!).
Our portfolio is down less than 15%. I could liquidate it with a few clicks of a PC mouse, at very little cost. Since we don't need any distributions from it, I can take a long-term view (same as with a house) and allow it to compound at very little bother to me.
We have owned the house for 20 yrs, and started our retirement account 25 yrs ago. After taxes, maintenance, and utilities (higher than with an apartment), our home has returned approx 3.2%/annually. Our portfolio has returned 7.9% annually. I live in coastal Northern CA, where RE values are consistently higher and already starting to recover from their fall, and property taxes are minimized under Prop. 13, which froze the base rate for all homeowners.
Our home is not any more valuable, or genuine, than our liquid asset portfolio. Both can and do, vary in worth - both positively and negatively - under circumstances beyond my or your control. But RE is a far less liquid asset, and in fact acts very similarly to a bond, versus an equity (stock).
One is not better than the other. If you use your home as a way to save money (build equity), you are still dependent upon buying low and selling high - precisely what many new homeowners who are underwater on their mortgages, were unable to accomplish.
It is certainly a good time to buy a home for cash, although there is no rush because of the huge 'shadow inventory' being held by the banks. If you buy now and pay cash, you only have taxes, maintenance and utilities to cover. It may be cheaper than renting, or it may not - the rental market is very localized and yours is no doubt different than ours. But you will wait 5-10 years before your ROI turns positive, unless you are doing FSBO and not using an agent when you go to sell.
I worked for an independent CFP whose clientele averaged a net worth between $1-8M total assets. I've also worked in the corporate banking division for two different banks. I can tell you that people with a high net worth or any smart business, do not let money 'sit around in a bank' except for short periods of time. They put that money to work as soon as possible, but they are not afraid to look at a wider range of investment possibilities, balancing risk vs return.
In short, I think there is no simple answer to your question. Once you are retired, you may find fewer offers of credit extended to you - but you will still receive them if your credit score is good. Almost all banks have clamped down on HELOCS so even if you pay cash for a house, you'll generally only get 50% of its worth on your HELOC limit.
If your local RE market is starting to recover, buying a house for cash might prove a good investment. OTOH, if your local market is one of those smaller cities that are just starting to see an increase in foreclosures, you'd be better off waiting until things stabilize. Personally I'm looking forward to the time we decide to sell our home and downsize to a condo or rental, since I'm the one who maintains both home and garden, LOL! In our area, apartments are rent-controlled, so monthly expenses for renters are fairly stable.
In your shoes, I'd have a talk with a couple of experienced local RE agents to get their opinions on what's happening in your area, and what they think the next few years are going to bring. Then I'd research what the unemployment/new jobs picture is in your area, because that's what pushes both the home sales and rental stats.
Good luck to you in whatever you choose to do!
I agree that right now is NOT a good time to buy a house (depending on geography). I live in the Los Angeles area. We bought our house in 1985 and even after the two RE crashes (1993 and 2008) it's still worth over THREE times as much as what we paid for it. Plus all these years it has given us a very valuable tax deduction on mortgage interest paid. If you pay cash, you won't have a mortgage and therefore no deduction.
As for HELOCs, if you have excellent credit, you can get really good deals. Our first mortgage was paid off in 2008 (after numerous re-financings). We also have had a HELOC at prime since 2000. The "drawing period" was to expire this month. But back in February the lender offered to extend the drawing period for another 59 months under the same terms, prime. All the lender required was a notarized brief application. When I checked around, the best I could get for a new HELOC was prime +250 basis points. Think about this: I have a credit line with a 3.25% interest rate which is tax-deductible. I can buy muni bonds free of federal and state tax that are yielding 5%-6%. It's a no brainer, called "positive arbitrage".
If anyone is concerned about the creditworthiness of California General Obligation bonds. I have good news for you. Write me.
If I were living in a rental (like our children are) I would wait until the "shadow inventory" is digested. Otherwise you are likely to end up underwater in short order.
Finally, there is the psychological satisfaction of owning "your own land". What price can you place on that??
I don't have the financial knowledge to address the above question, but I can tell you that having a paid off mortgage makes one feel like the little pig that built his house of bricks. There is a great deal of psychological satisfaction in knowing that you own your shelter free and clear.
HELOC = Home Equity Line of Credit. Once you build sufficient equity in your house you can use these flexible borrowing facilities (for home repairs, improvements, or just about anything you would borrow money for). The interest rate is so low because your house is the collateral, so it's a secured loan. If you don't pay it back they foreclose on your property like in any other mortgage.
This is a specially good time because the prime rate is tied to the Fed funds rates which are 0%-0.25%. But be prepared to pay it back if interest rates go much higher quickly. There is normally no pre-payment penalty.
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