Ideally you should focus on all of the above. I think it's still a good idea to invest for long term goals like retirement while also saving for shorter term goals such as home ownership. If you have a retirement plan at work take full advantage of any employer matching contributions. If a 401k plan is not available at work try to set aside funds in an IRA.
General rule of thumb is to make sure that you have at least 3 months of emergency savings in place, pay off high interest credit card debt and if you are part of an employer retirement plan at least contribute to get the match. Once this foundation is in place ideally save 20% of the purchase price to avoid having to pay PMI (private mortgage insurance) which typicall charges .5 to 1% of the entire loan amount annually. This article explains PMI: http://www.investopedia.com/articles/pf/07/avoid_pmi.asp
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