China's auto asset-backed securities (ABS) segment has seen a sharp erosion in key arrears and default metrics in the last quarter of 2025, while residential mortgage-backed securities (RMBS) showed a more stable performance, Fitch Ratings said in a Tuesday release.

Both segments will deteriorate in 2026 due to a weak economy, with auto ABS likely to perform worse given more relaxed underwriting standards, Fitch said.

Auto ABS' annualized gross loans (AGLs), a measure of sector-wide asset default rate, grew to 1.13% in the fourth quarter from 0.75% in the previous quarter, reflecting sector weakness, the rating agency said.

For RMBS, AGLs modestly increased to 0.76% from 0.74% in the past quarter.

The housing market continued to underperform with national home sales declining 17.9% year over year and prices hovering below their peaks in tier one, tier two, and tier three cities, Fitch said.

The rating agency expects a 4% to 6% drop in existing-home prices this year, with high-tier cities faring better than lower-tier cities due to more stable inventory levels and wider scope for incremental policy easing.