Interesting point CBad. Suppose you have 1.5 Million in retirement assets when you are 64 years old. You are purchasing a 350K property. You have another 70K saved up for a downpayment. If the retirement account is tax deferred, you can either withdrawal about 500K from your retirement account all at once in order to cover the purchase and taxes on withdrawal … at some of the very highest tax rates. OR you can withdrawal about 20K per year to pay the mortgage at more modest tax rates. Why wouldn’t you take out a mortgage in that situation (assuming the lender will do so). Also, this way you let the bank take some risk. If you croak before paying off the loan and the house is underwater the bank loses and your heirs win. If the house is worth significantly more when you croak, your heirs win again.
Again, this only makes sense when the monthly costs of purchasing approach monthly costs of renting (not there yet in San Diego).