Mortgage balances fell 1.3% in the July-September period, according to data from the Federal Reserve Bank of New York, while overall household debt shrank by 0.6%.
Such reduction of debt - deleveraging in economist-speak - has over the past couple of years dampened consumer spending, which accounts for 70% of the economy. But as consumers make headway on their obligations, they have more money to spend on things other than paying down debt.
"I think it's a positive sign," Mark Zandi, chief economist at Moody's Analytics (NYSE: MCO), told The Wall Street Journal. "It means households are getting their financial house in order and that their heavy debt loads are much less weighty than they were."
In fact, consumers are so eager to get back to spending again that debt other than mortgage balances actually increased slightly, and credit card inquiries were up for the second straight quarter.
"There is a silver lining in all of this," Anthony Karydakis, chief economist at Commerzbank AG (PINK: CRZBY) in New York, told Reuters. "Slowly but steadily, consumers are exploring more normal ways of returning to a more normal pattern when it comes to borrowing habits."
Confidence UpAn unexpected spike in the Conference Board's November consumer confidence report released on Tuesday is another sign that people are more willing to open their wallets.
The measure rose from 40.9 in October to 56 - its steepest increase since 2003. Economists had forecast a rise only to the mid-40s. Until the November reversal, the consumer confidence index had declined steadily since February.
Of course, the index is still far below 90, a level that indicates a normal, healthy economy. But at least it's finally heading up.
"This is a huge rise in consumer confidence. It gets us back to second-quarter levels and further underscores the dramatic move that we've seen in consumer spending," Lindsey Piegza, economist at FTN Financial, told Reuters.