Shanghai police say they have found the root of rumors that sparked a home-buying frenzy in late August and led to instability in the city’s real-estate market.It began, police said, with a woman who said she had a tip that the city government was mulling changes to home-buying rules.Find the more shanghai news from SHINE.

According to a police statement, a 34-year-old Shanghai property-sales manager—identified only by her surname, Shen—said she had been notified in late August that city officials would meet the following week to possibly tighten bank-lending rules in September.Police say she spread the alleged tip to other employees at her company and clients through the WeChat messaging app, encouraging potential buyers to snap up property before the rules took effect. According to police, Ms. Shen said the coming credit restrictions would be "big.” Her messages were shared by other users, fueling social-media buzz.

In a statement Friday on the official Weibo microblogging account for the Shanghai Public Security Bureau, police detailed how they traced the rumors from Ms. Shen and six other people. Police detained all seven suspects, most of them real-estate agents, on Sept. 6, and said that the suspects later confessed in court to circulating the rumors. Shanghai officials also closed five WeChat accounts involved.

The rumors had wide consequences, even sending couples dashing to get divorced out of fear a loophole was closing that had allowed lower down payments for divorced people buying a home. Amid the rush, at least one divorce-registration office in Shanghai said it couldn’t handle any more paperwork and shut for the afternoon.

Chinese authorities have long sought ways to clamp down on rumors that ignite a rush to buy or sell homes. Swings in the housing market are an especially sensitive issue as the country’s largest cities–including Shanghai, Beijing and Shenzhen—try to curb frothy home prices without causing prices to crash. Shanghai home prices have soared 22.6% since last August, according to SouFun, China’s largest online real-estate portal.Last Saturday, the Ministry of Housing and Urban-Rural Development, a central government agency, said in an online statement that it supported Shanghai’s crackdown on the rumors, and that any future cases of real-estate agencies disrupting "market order” would be put to a stop.

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