Good points, all. Let me add some detail to help.
The "$1M" is in accounts, IRA's, 401k's, taxable. It's a split of cash, bonds, stock.
I have another rental property with $125k equity.
The goal here is to setup something similar to MMM: make an addition to the family, downshift significantly (potentially no wage income for a number of years), and move to a house in another state where we can live in a cheaper market.
I'm not certain I want to buy a house today that I can't live in for 2 years (in another state, I'll still have to rent here, an even if I rent, I'll have to use a PM). I'm not sure how big a house I need (uncertainty of children). I'm not certain we'll be able to move when I say we can (health of kid(s)/wife and what that means for expenses and SWR).
My thought is to reduce these uncertainties so I don't have to pay multiple rounds of closing costs.
It's a fair point to make that a house price after expenses will generally keep up with inflation (which a money mkt won't).
In this case does it make more sense to earn 1% on cash or pay 2-3% on debt?