VERY IMPORTANT ARTICLE: Shanghai's hot housing market has fizzled after a run-up fed by speculators (hello Phoenix, Vegas and Miami - you're next)

This ugly article from Shanghai shows what happens when white-hot speculative market turns quickly (as it always does) to stone-cold panic mode. Substitute "Miami", "Vegas" or "Phoenix" for "Shanghai" to get a preview of what's coming here...

I believe this is one of the most significant articles I've read on the bubble - because it is showing us in a microcosim what is to come in the hyper-speculative US cities. I recommend reading the entire article (especially folks in Miami, Phoenix and Vegas!). This is real folks. Not theory. It's happening.

Once one of the hottest markets in the world, sales of homes have virtually halted in some areas of Shanghai, prompting developers to slash prices and real estate brokerages to shutter thousands of offices.

For the first time, homeowners here are learning what it means to have an upside-down mortgage — when the value of a home falls below the amount of debt on the property.

Recent home buyers are suing to get their money back. Banks are fretting about a wave of default loans.

"The entire industry is scaling back," said Mu Wijie, a regional manager at Century 21 China, who estimated that 3,000 brokerage offices had closed since spring. Real estate agents, whose phones wouldn't stop ringing a year ago, say their incomes have plunged by two-thirds.

Shanghai's housing slump is only going to worsen and imperil a significant part of the Chinese economy, says Andy Xie, Morgan Stanley's chief Asia economist in Hong Kong.

Shanghai's housing bust comes after a doubling of prices in the previous three years, a run-up fueled by massive speculation. With China's economy booming and Shanghai at the center of worldwide attention, investors from Hong Kong, Taiwan and elsewhere were buying as fast as buildings were going up. At least 30% to 40% of homes sold were bought by speculators, says Zhang Zhijie, a real estate analyst at Soufun.com Academy, a research group in Shanghai.

"Ordinary people had no option but to follow the trend," Zhang said. "Worrying that prices would be even more unaffordable tomorrow, many of them borrowed from relatives and banks to buy as soon as possible."