Buy a House or Hold on to Cash?

Financial advisers weigh in on a reader's dilemma.

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Dear Alpha Consumer,

We are in our 50s. We sold a house and have those funds in a money market account. Our question is, should we use all our savings and, in combination with taking out a $100,000 mortgage, build a new house right now, or should we hold onto the cash and wait for the economy to stabilize. Our jobs seem secure, but anything can happen.

It's impossible to predict what will happen with the housing market—or the larger economy for that matter. But the two financial advisers I described your situation to both leaned toward holding on to your cash for the time being. Here are their suggestions:

• Shane Barber of the Barber Financial Group in Lenexa, Kan., says you should first ask yourself these questions:

First, do you consider your home part of your retirement plan? If so, don't build it; at least not yet. There could be much better deals to be had in the coming one to three years as home prices continue to decline. Like anything you consider an investment, buy low and sell high. (Note: Residential real estate is not the investment most people think it is. Our opinion is that you should never look at your home as anything other than a place to live.)

If the economy does not stabilize, and in fact gets worse, the cash could keep you from having to dip into other retirement assets to maintain your lifestyle, especially if you or your spouse find yourselves out of work.

How long do you plan to work? Can you have the debt retired before YOU retire? Making a mortgage payment in retirement may be more stressful than you think since you no longer have a traditional paycheck.

Finally, if you decide to build, please carefully consider what your attitude will be toward your home when you are 65 or 70 years old, specifically in the areas of stairs, yard work, maintenance, and cleaning. These are the four major factors that make people decide to sell the home they thought they would spend their retirement in.

• Tom Hepner of Ruggie Wealth Management in Tavares, Fla., recommends holding on to your money. He says,

Be cautious. Cash truly is king right now. My personal opinion would be to stay fairly liquid and monitor the housing market closely, with a trusted realtor feeding you information and statistics on local housing inventory and sales.

If you have over $100,000 in an FDIC-insured account, like checking or savings, split it into differently titled accounts, so no single account exceeds the $100,000 insurance protection provided by the FDIC. Your bank can help you do this. A true money market account is not FDIC-insured.

If you live in a depressed real estate market, you might consider buying rather than building. In many parts of the country, the cost per square foot is actually less to purchase an existing new home than to build the same home. We have builders telling us they can't complete with prices of existing homes. Renting for the time being may also be an attractive option, since many owners cannot sell and are renting simply to help cover their carrying costs. Financing a new home, even with a $100,000 mortgage, is more difficult than it has been for a while. Lenders have become very cautious, lowering their loan-to-value amounts and wanting more financial verification.

If you have a personal finance question, E-mail alphaconsumer@usnews.com.