If it makes sense to buy a house really depends where you live. One downside of not being a house owner is that you miss out on that passive $400k income. I felt like a was paying too much when I bought a house in 2017 but it has already turned out to be a great investment. And as long as you continue to be a house owner on the same market then it doesn't matter much if the prices go up or down. If they go up then my current house increase in value. If they go down then my next house will be cheaper to buy. It's only when you downsize or is forced to sell at a specific moment (e.g. because of a divorce) where you lose a lot of money.
This is actually the smartest thing anyone has ever said to me about buying a house that clicks.
My main concern is the house going down in value and overpaying, but you're right that if I sell a house at a loss, the place I'll be moving to will probably have taken even more of a loss or the same loss unless I'm downsizing.
I think the only long term thing you get screwed on is paying property taxes since they're based off the price you bought, so an extra $4k/year over time adds up to a decent chunk of change if you buy at the top of a market when a $400k house is $800k.
It sucks, but alternatively rents keep increasing and if you don't buy and rent over time you probably end up spending an extra $4k/year or something too (fuzzy math).
If I do buy sometime soon, I will miss my current neighborhood. It's very walkable and there's an amazing Japanese bakery, amazing Japanese sushi place and amazing Mexican taco place with the best Horchatas and very good NY style pizza place all within < 1 mile walk. But the housing prices in my neighborhood are insane, so I wouldn't be looking to buy a home near where I'm currently at.
Living in Orange County CA and looking at housing prices, basically everything in OC and north of OC spanning to LA (Long Beach) and north LA is crazy prices because that's where people want to live, whereas going south of OC towards San Diego (Oceanside/San Juan Capistrano/Mission Viejo) starts to get more reasonable but you live an extra 40 mins away from everything in OC and 2-3 hours from LA stuff. It's all pretty complicated -_-