How is holding your cash and great credit bad in that scenario. Inflation doesn’t spike over night. When you see inflation going up at full tilt, you can put that 20% and great credit to good use and buy a house at that time. It’s still much safer than buying w/ FHA now w/ an intention of walking away if the 3.5% down get wiped out. Which, IMHO, is very likely.
It’s not necessarily bad, it’s just that if we get inflation in home prices due to government interference/money printing/etc…, they will rise much faster than your savings since those prices are based on leveraged values. If you are a really good investor this might not affect you, but if you’re like me and lose money on every single investment you make, a house might be a safer bet in the high-inflation scenario. If you expect high inflation in asset prices, you might as well borrow as much money as possible right now and convert it to hard assets.
I wouldn’t advise anyone to walk away just because their house devalued 3.5%. The only reason I can think of for walking is losing your income and not being able to make the payments.