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Feeling less financial stress? Here's one reason why

Andrew Unangst | Photographer's Choice | Getty Images

If you're feeling a little less stressed about your household finances, you have the housing market to thank. But your stress level may start rising again this year.

A rise in the value of your home doesn't translate directly into cash you can spend to pay the bills. But it does add to your real wealth, which makes those bills feel a little less stressful.

That's why the recent strong rise in home prices accounted for most of the improvement in the Household Financial Stress index tracked by economists at PNC Financial. After peaking in the depths of the Great Recession, the latest reading from the index continues to fall, according to the Pittsburgh-based bank.

Home prices have been on a tear, surging by 13.4 percent last year, according to the latest reading from the S&P/Case-Shiller 20-city home price index. After bottoming out two years ago, the widely followed index has risen 24 percent.

(Read more: Home prices end 2013 on strong footing:Case-Shiller)

From that trough, the total market value of real estate held by households and nonprofits has risen by $3.5 trillion, or about half of what was lost when house prices began their historical collapse in late 2006, according to Federal Reserve data.

Big gains in stock prices also have boosted household wealth, and banks are gradually more willing to lend.

Consumers are also getting a break as prices hold steady. For most of last year, the annual rise in the consumer price index ranged between 1 and 2 percent. The domestic boom in oil and gas production has also helped dampen wide swings in gasoline prices, which can put a major crimp in households' budgets.

(Read more: Consumer confidence falls in February)

Though rising home values and stable consumer prices have helped bolster household finances, the job market—a third major component in the PNC index—hasn't had nearly as much impact. Though the jobless rate continues to fall, the improvement has been painfully slow for the 10.2 million unemployed Americans still looking for a job.

The relatively high jobless rate has also put a damper on wage growth, as employers can still retain workers and fill most job openings without raising wages. That may change if the jobless rate continues to fall and the labor market tightens, but that impact has yet to show up in workers' paychecks.

"In the next six to 24 months I think we'll see an improvement, but we're not expecting fast rates of income growth," said PNC economist Mekael Teshome. "That really is the Achilles' heel of the economy right now."

Despite the gradual easing, the index will likely begin to edge higher again this year as inflation picks up and the rise in house prices begins to slow.

(Read more: Winter storms cause over $1.5B in insured losses so far)

The latest data on housing has been mixed—partly due to the impact of severe winter weather. But a longer-term rise in mortgage rates has cooled demand somewhat and slowed price increases.

The recent price run-up has also been fueled by strong demand from investors looking for rock bottom prices. Demand from those buyers is also expected to cool this year.

While rising home prices and tame consumer prices have helped reduce household financial stress, consumers are apparently bracing for more stress in the coming months, according to the latest read on consumer confidence levels.

Confidence about current economic conditions—including personal finances, job prospects and overall economic well-being—has risen to the highest levels since 2008, according to the latest reading from the Conference Board.

But they're feeling uneasy about what lies ahead, based on a drop in the survey question on future conditions. That index dropped this month to the lowest level in three months.

"Consumers believe the economy has improved, but they do not foresee it gaining considerable momentum in the months ahead," said Lynn Franco, the group's director of economic indicators.

By CNBC's John Schoen. Follow him on Twitter @johnwschoen or email him.

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