U.S. demand for home loans fell for a third straight week last week, while prices for single-family homes retreated further in July as the housing market struggles for balance with less government support.

Loan applications to buy homes fell 3.3%, the Mortgage Bankers Assn. said Wednesday. A second report showed the Federal Housing Finance Agency's house price index dropped 0.5% after falling 1.2% in June.

The housing market, the main catalyst of the worst recession since the 1930s, has hit a soft patch since the end of a popular home buyer tax credit in April, posing a threat to the fragile economic recovery.

Although much of the housing market weakness has been blamed on the expiration of the tax credit, analysts said stubbornly high unemployment also was sapping demand for homes.

"We fear that a more longer-lasting slide is underway. High unemployment, heavy indebtedness and widespread negative equity are weighing on housing demand," said Paul Dales, a U.S. economist at Capital Economics in Toronto.

Although the recession ended in June 2009, the pace of economic growth has been too sluggish to bring down a 9.6% nationwide unemployment rate.

With jobs scarce, homeowners are losing their houses, causing an oversupply that is weighing on prices.

A report Tuesday showed groundbreaking for new homes rose 10.5% last month, the biggest jump since November, offering some hope the market was stabilizing.

"I think we are at minimum near bottom and we may be at bottom," David Stevens, head of the U.S. Federal Housing Administration, told a congressional panel Wednesday. The FHA, which provides federal guarantees on loans, is one of the government's main props for the sector.

But near-record-low mortgage rates are doing little to stimulate demand with lending standards still tight. The Mortgage Bankers Assn.'s index measuring both purchase and refinancing applications last week fell 1.4%.

Analysts expect data later this week to show home sales bouncing back from July's decline, but caution that housing will struggle without significant labor market improvement.

"In the absence of a rapid employment growth, and factoring in all the potential excess housing supply from foreclosures and looming delinquencies, housing prices will likely remain under pressure and continue trending lower throughout this year and next," said Yelena Shulyatyeva, an economist at BNP Paribas in New York.

The National Assn. of Realtors will release its August report on sales of previously owned homes Thursday and the government will reveal August sales of new single-family homes Friday. Both reports are expected to show sales rebounding after steep drops in July.

In the 12 months to July, the Federal Housing Finance Agency's house price index fell 3.3%. It is down 13.8% from its April 2007 peak.

"The big downward adjustment in prices is already behind us, but a second downward leg will still undermine the wider economic recovery," said Capital Economics' Dales.