What happens when you invest the $60K difference in down payments in an index fund, over your ten year time frame? Typically it would double,and more. Now factor the $25-30K spent on resale fees for the bigger place, when you liquidate. Next, assuming you end up with a shiny new place for your $400K, how much are you going to have to spend to get it back to that condition when you sell it? You would be lucky to not have to at least replace a significant amount of the floor coverings, and put a coat of paint on the interior. Wouldn't be surprised to hear the realtor recommend $15-20K in cosmetics at that point to make it competitive with the market, which in a low cost area of VA. puts you in high dollar territory. Finally, I live in the mid-Atlantic, about half a days drive north. I have actually been house shopping in your city and the surrounding area. I have also seen desirable neighborhoods in my region, with good schools, and a stable safe environment, that took 25-30 years to see the kind of appreciate you are factoring. When I quoted Shiller, I did so out of experience. His data is not an outlier, there are others that reached the same conclusion after compiling the last century of values in the states. Overall home values have been basically stagnant in that period, and do not come close to keeping pace with inflation. If you buy a well vetted, modest $100k place, and keep the $60K split invested, you are much more likely to come out significantly further ahead in 10, 15 or thirty years.
EDIT: Totoro brings up an excellent point that I missed. I would love to see one of the numbers geeks here do a work-up on the lost opportunity cost of your additional monthly payment, spread over a 10,15 and 30 year time frame. Nothing fancy, just looking at long term historical performance of a low fee, total market index fund, and how your net worth looks after depositing $1100 a month into it, over that time. I would guess that this would pretty much kill any justification for overspending on the mythical housing "investment".