Has anyone else done this and either found it works 100% or experienced any problems (especially with Spotlight)?
I'm seeing numerous YouTubers, and especially this fellow, pushing this hard. I'm seeing it touted on forums like right here. But I see no acknowledgment or discussion of the major limitations I and others have experienced and commented on. I remain interested if the problems are rare (I'm unlucky) or the YT'ers are conveniently ignoring problems to make happy tech videos.
I've had my home directory on a separate partition from the OS since circa MacOS X 10.1-3 and on an external drive since circa 2010. I've done this even on older Macs where I could have swapped out the Apple-provided drive with a larger, 3rd-party drive -- I generlaly believe it's good practice to seperate the OS from user files (as well as 3rd-party/unbundled applications).
I recall in early days this configuration was less supported but still worked well enough with a symbolic link (e.g. /Users/myUser -> /Volumes/External/myUser). For some time now it's also been supported to use Advanced Options in User to set home to a custom folder.
The biggest issue I've found with having one's home folder on an external drive is when the drive gets accidently disconnected (e.g. something/someone bumps the USB/Thunderbolt cable/connector). As such I don't normally use this with laptops (but have used it as a fallback as I can move my entire environment to another Mac < 5 minutes) though I still keep my home folder on a separate partition (which is then preserved even if I want to blow away the OS or switch back and forth between OS).
If the external drive holding a home folder does get disconnected while logged in, safest to close everything (note your home folder may not be accessible), logout, run First Aid on the disk, make sure everything is okay, and then log back in. This process is not ideal for your typical/90% of computer users.
If it is removed/disconnected and then a login is attempted, I recall macOS just recreates a new user in /Users (note, I haven't tested this in a while with recent OS and/or with home folder explicitly set to a non-Users location). Plugging the drive back in and/or logging out and logging back in won't fix this so again not great for a typical/90% of computer users.
As far as supported, there seems to be lots of hooks in macOS to support non-local home folders in an enterprise environments as this is not uncommon in such environments. As such I assume it is supported with the priviso that supported environments typically include dedicated IT people to troubleshoot if something goes askew.
Also, the more one goes outside common configurations -- supported or not -- the more trouble one is likely to encounter. I have seen 3rd party apps that hardwire folder names to start with /Users -- presumably incorrect as far as proper use of the macOS API and bad practice in UNIX for 40 years but that doesn't always stop people.
With those caveats in mind, I haven't had any issues / regrets with this configuration. Spotlight works the same (though I haven't found it reliable for many generations of macOS but believe that relates to something unrelated). Guessing it does't work with iCloud Drive but I have no interest in that. Not sure about TM as I have a non-Apple-dependent scheme for backups. I've heard Apple Intelligence is not supported in this configuration but honestly I would pay at most $4.99 to get the novelty of Genmojis so wouldn't break the configuration I otherwise prefer for it.
P.S.I always maintain an administrator account seperate from my user account and I always keep that account local.