If you believe we’ll have deflation long term, it makes sense to buy a house for cash (or wait to buy it until prices come down more as they likely will). If, however, you believe there’ll be high inflation in future, taking a mortgage at low rates while keeping the money in a bank will actually bring you more money in a long run, IMHO. This is because when the inflation picks up, the value of money you owe will drop while the return on investments, even CDs will likely to go up as the government will raise rates to fight it. When the inflation got to double digits in late 70s and early 80s, government bonds were paying 18% — way above the rate paid by those who took mortgages in late 60s and early 70s.

I have a couple of multi-millionaire friends. They just bought a vacation home, and they took a mortgage even though they have three times the amount in their brokerage account alone. They are also not rushing to pay off the mortgage on their primary residence even if they could do it easily, but it is at low fixed rate they locked in early 2000s. When they were buying this vacation home I asked them if they plan to pay cash or take a mortgage. They said – we take mortgage because we believe that with all the money being printed we’ll get high inflation eventually, and it makes sense to lock in lower rate rather than spend cash. BTW – these are people who sold all of the stocks in non-retirement accounts in 2006 and bought some short ETFs. They sold ETFs a bit too early just as they sold stocks a bit to early, but they still did a lot better than most of us. Of course, they may be wrong, and we may not get inflation as they think, but it is still something to consider.

I do believe it still makes sense to wait with buying a home and save more money now as the prices are likely to come down more and the rates aren’t going up until the economy picks up, but even if you have cash to buy a home, sometimes taking a mortgage can be a better strategy. In addition to inflation, there is also a risk of a real emergency. Not just a minor thing like a car breaking down or even a more serious problem like a few months out of a job for which your emergency fund will suffice, but a real emergency like an illness that may cost high 5 digit or low 6 digit amount in non-covered expenses. If you spend all of your savings except for a relatively small emergency fund on a home and then you have a really serious emergency, you’ll have to take an equity loan at whatever rate you can find. This rate may easily be higher than what you can get on a fixed 30 year mortgage when the rates are low.
Bottom line – there are a number of considerations, and buying a home for cash isn’t always the best strategy.
Another consideration is that real estate market is cyclical. Now the prices are coming down and are likely to continue to do so. At some point the prices will start to go up again. At this time it would be a good time to buy regardless of whether or not you have 100% of its value in cash or you’ll miss a chance.

Not the best advice or strategy for everyone. For a super-saver like yourself, though, it might be practical. You seem very unlikely to reduce your savings or go on a spending spree from your Roth money

We plan to do this in saving for our son’s college education. We’re house-poor (hoping to sell asap!) so we don’t have as much cash as we’d like to save for everything (actually, much of anything). Our first priority when we have more cash available will be to max out both our Roth IRAs. With one income, it will be a long time before we can save any more than that. Instead of diverting anything to a college fund, we will know that our Roth contributions can be used for college when the time comes, if we choose. We will be in a lot better position to decide how much to foot the bill for our son in 17 years than we are now. It allows us to take maximum advantage of tax savings but still allows us great flexibility. (And we’re also super frugal, so we are truly saving every penny we can whether we have a dedicated college account or not!)

My financial goals for 2009 include:

1. Pay off the $19,000 student loan bill.
2. After losing the student loans (hopefully late summer/early fall, begin saving for home down payment.
3. Graduate from Grad School.
4. Use my personal blog as a pf learning tool while establishing a solid readership.

I look forward to reading about your official 2009 goals!