Old School Steve,
You're in a tough spot -- decently close to retirement yet with enough stocks still for this downturn to be hurtful. There is no question that NO ONE here can give you information that will soothe your worries -- I know I can't, and anyone who says they know for sure if you should stay in or get out now if just full of it.
Based on what others are saying though (specifically Jeremy Grantham and Warren Buffett), I'll tell you what I would do in your situation...first of all let's make sure I'm correct about your situation:
1) You have $700,000 in equity in real estate.
2) You have $250,000 in cash.
3) You have more money then also in stocks?
4) You will be at least 62 in 7 years?
If the above is correct and it were ME about to retire in 7 years, I would do the following:
1) Be grateful for the equity and consider selling it all when closer to retirement and using the proceeds to help fund retirement IF my other stuff continued to do horribly -- it IS a bit of a safety net. You could always buy a $200,000 small house or condo or something and bank the difference - I'd probably do that.
2) Keep that $250,000 in cash for now -- maybe at least put it in CDs or an MMA so it would gain some.
3) Keep my stocks where they are, but all future purchases would be bonds (since you're so close to retirement and stocks are sketchy now).
4) I would NOT sell those stocks.
Here's your situation (conservative):
1) In 7 years your $250,000 at 2% interest per year turns into $281,540.60 (this is if in a CD or MMA that brings 2% annually).
2) You continue buying bonds at 2% interest per year for 7 years. I'll assume $20,500 each year (even though at age 50 you could do more or if you have a wife that also has an IRA you could do more). That brings $155,450.86. A bigger percentage would bring more money.
3) Assume you sell your real estate and buy $200,000 worth of house so that you have $450,000 (leaving some out for commissions and moving costs) remaining in cash.
Let's add that all up:
$281,540.60
$155,450.86
$450,000.00
EQUALS - $886,991.46
Take 4% of that each year to the tune of $35,479.65. If you are 62 or older you can get Social Security too to the tune of at least another $18,000 or about $27,000 if you're married. Now we're up to $62479.65 (if you're married -- $9,000 less if not). And we've not even included the stocks you're so worried about (unless I've got this wrong about what you have).
If the stocks are still doing poorly then just let them lie there (unless you have several hundred thousand dollars -- then consider making them into more conservative investments and cutting your losses then).
So, if I've got your situation correctly, you should be debt free and living in a paid for house and making a little more than $62,000 a year even if any stocks you have now go to nothing.
Since Grantham is very bullish on the market in the next 5-7 years, there's a good chance your stocks will rebound at least a little and give you even more income.
Anyway, you've gotta go with what you think is best -- it's your money. I hope it all works out for you.