The average payment fell to $2,140 from $2,167 in June, according to the Mortgage Bankers Association. Year-to-date, the national median mortgage payment is down by 1%, or $22.

Edward Seiler, executive director of the Research Institute for Housing America at the MBA, noted this is the third consecutive month of declining average payments. 

"Rates below 7% and rising housing inventory continue to bode well for prospective homebuyers," he said in a written statement Thursday. "MBA is expecting that slower home-price appreciation, coupled with lower rates, will ease affordability constraints and lead to increased activity in the housing market."

For Federal Housing Administration-backed loans, the average payment was $1,838 in July, a decrease from $1,854 the previous year. Conventional loan payments averaged $2,180, down from $2,197 in July 2023.

Mortgage industry professionals are anticipating further drops in mortgage rates, with the Federal Reserve hinting at a possible easing of its inflation fight. Some loan officers already have clients waiting for a September rate cut to refinance or buy a property, they said.

The trade group's purchase applications payment index, which measures how new mortgage payments vary across time relative to income, decreased by 1.9% to 167.7 in July from 170.9 in June,  and was down 3.8% year-over-year, while annual earnings rose by 2.9%.

Affordability improved across all racial demographics. Black households recorded a July score of 168.2, down from 171.4 the prior month. Hispanic borrowers saw their index level drop to 156.5 from 159.5, while the index for white households fell to 169.4 from 172.6 the month prior.

States with the highest PAPI in July were Nevada, Idaho, Arizona, Rhode Island and Tennessee.

Meanwhile, states that were low on the PAPI index were Louisiana, New York, Connecticut, West Virginia and Kansas.