One connection is obvious: rising house prices are usually associated with strong consumer spending, which tends to suck in imports.
Another connection lies in an accounting identity. High house prices are usually associated with the personal sector running a financial deficit, because it is spending more on buying houses than it is saving; in other words, it is a net borrower.
However, financial balances must sum to zero: if someone is borrowing someone else must be lending. That someone is now the overseas sector. This is usually the case: since 1983, there has been a strong correlation (of minus 0.58) between the ratio of house prices to earnings and the current account deficit as a share of GDP.
It's not just in the UK that high house prices are accompanied by external borrowing. In the mid-2000s house price booms in (for example) Spain and the US were accompanied by increased borrowing from overseas, too.
Now, in theory this isn't necessarily a problem. If people rationally expect strong growth in their incomes in future, they'll borrow in anticipation of the good times and house prices will be high.
History, however, tells us that this benign possibility is a rare one. As I pointed out last week, high house prices lead more often to falling prices than to rising productivity and incomes.
Worse still, the combination of high house prices and current account deficits can lead to financial crises. To see why, remember what an external deficit is. It is an excess of domestic investment (due to people buying expensive housing) over domestic savings. This can often mean that banks are lending more than they are taking in in deposits - which means they are becoming more reliant upon wholesale funding and, often, that they are becoming more highly geared, too.
It's no accident that the US financial crisis of 2008 followed a housing boom and current account deficit. The external deficit might not have scared off foreign investors; they were happy to buy dollar assets in 2007 and 2008. But it was - we know with hindsight - a warning sign of domestic financial fragility.
Might the same happen again? The OBR thinks not. It expects households to run a persistent financial deficit - of around 3 per cent of GDP - through to 2020. And it expects house prices to rise by 14.1 per cent in real terms by then. That's twice the rate of productivity growth, despite the fact that real house prices and productivity have in the past risen at comparable long-term rates.
Is this plausible? One reason to think so is that banks are in stronger shape now so a repeat of 2008 is unlikely. One gauge of this comes from the Bank of England's monetary data. These show that between 2000 and September 2008 bank lending rose by £1.7 trillion while bank capital (non-deposit liabilities) rose by only £287.5bn - a sign of how stretched balanced sheets had become. Since then, however, lending has risen by only £12.6bn - thanks to companies repaying debt - while non-deposit liabilities have increased by over £300bn. On this measure, banks are able to continue lending generously to support house prices.
However, a banking crisis is not the only obstacle to ever-increasing house prices and household debt: anything that depresses households' income expectations would have the same effect. So too might the increasing unaffordability of houses. More worryingly, so too would a 'sudden stop' - a reluctance of overseas investors to buy sterling assets, triggering a rise in interest rates.
The OBR's idea that house prices and personal borrowing can continue to rise is only one possible scenario. I'm not sure we should bet very heavily upon it.
