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Welcome to Financial Freestyle. I'm Ross Mack, and this is sponsored by Vanguard.What's up, world? Welcome to Financial Freestyle here on Yahoo Finance, and I'm your host, Ross Smack. No matter where you are in your life, you can always learn more and that's why you reached the right spot because I'm speaking to some of the most influential people in finance, and today is no different. I'm talking to the Darryl Fairweather, chief economist of Red Finn and author of Hate the Game. Darryl, how areyou today?

I'm doing great, thanks for having me.

Now, thanks for being here. Obviously, you uh, you have a very extensive resume, but to the world, right? To the people, to the viewers, who is Darryl Fairweather?

I am the chief economist at Redfin. I have a PhD in economics from the University of Chicago, where I specialize in behavioral economics. I've spent a lot of time being an economist in tech, and throughout my career, I've always used what I learned in my PhD in economics to advance it, and I feel like more people could benefit from learning economics if they want to advance their careers. So that's what I'm here to talk about.

I love it. Help, help us understand how you got interested in economics.

Sure, so I originally thought I wanted to be an engineer. I was good at math and physics, and so I applied to MIT, that's where I went for undergrad, thinking that I was going to study mechanical engineering. But then on the way to MIT, my dad gave me the book Freakonomics, and that just opened my eyes to what economics is. And it turns out the author Steve Lovett went to MIT, so I was like, oh, this is destiny. I need to study economics. I'm in the exact right place to do it.for the kind of economics that I want to learn, which is more math heavy. And I pursued it, but I actually got a little bit of, uh, heat from my dad and my grandma. My grandma was the first black woman architect to be licensed in New York, and then she did it again in California, the first to be an architect in the Institute of Architects. And she was really hoping I was going to be an engineer, so she called me up and tried to talk me out of it.And my dad tried to talk me out of it too. They thought that if I pursued economics, I would face more struggles because economics is subjective, whereas math and science and engineering is more objective. And being a woman and a woman of color, they thought that engineering would be safer for me. But I really wanted to study economics, so I decided to do it anyway. And, uh, that's, that's really the story of how I, how I got into it.

I love it. Uh, phenomenal story, right? I don't think, uh, right? Going to MIT, getting your PhD from U Chicago, that is not nothing to sneeze at. So congrats there. If you don't mind, I want to talk about your, you know, your current career right now as the chief economist at Redfern, right? It's so much stuff going on. And I would love to get your view just kind of like, when you look at, you know, home prices still trading at all time highs, like, what are some of the economic forces that are impacting that?

So, during the pandemic, interest rates dropped to record lows. You could get a mortgage for a 3% rate on a 30 year fixed mortgage, and because mortgages were so cheap, people rushed into the housing market and that drove up values. There was a limited supply of homes. Builders started building, but it really wasn't enough to meet demand. So when there's more demand than supply, prices go up. And even though interest rates are now higher, they started going up in 2023, and that really hurt demand for housing. The people whoBought homes during the pandemic still have those super cheap mortgages, and they don't want to give them up. So now we have a pullback in both supply and demand at the same time. Way fewer home purchases are happening than during the pandemic or even before the pandemic, but values are staying high because when both supply and demand go down at the same time, prices just remain the way they are. Sellers don't want to budge on price and buyers just end up going to the rental market instead. So we're stuck in this place of just really high values right now.

Well, one, I'm one of those people, right? I was able to get a 3% mortgage and what's crazy is I want to get a bigger house and it's like, yeah, let me just chill out until these rates come down, right? Uh, and obviously, and obviously we got to talk kind of around the way of politics, right? But like obviously you have, you know, Trump wanting.Rates to come down and so obviously that could bode well for buyers, or generally for the housing market in general. But kind of what going on from a geopolitical risk, especially with tariffs, what's your outlook and how can that impact housing?

So what tariffs do is they basically make it harder for our economy to produce stuff. If it's more expensive to import parts to build things, it's harder to build things, and this like can spread throughout the economy in really unexpected ways, like things that are produced together where one good is exported and one good isn't. If one good is more expensive to make, then it impacts the whole entire supply chain. There's a lot of concerns.About supply chains right now and what that's going to do to productivity in the US. But what it's definitely going to do is raise prices. And if prices go up, what the Federal Reserve is going to have to do is keep interest rates high or even increase interest rates, even though that's going to hurt the economy. Pulling money out of it means fewer people can afford to buy things. But it's really necessary because when the economy can't produce as much stuff, if you don'tReduce the amount of money in the economy, then it just ends up with higher and higher prices. You get to a situation like hyperinflation, which was what we saw in the 1970s and what we saw in Argentina. And the Fed's just not going to let that happen if they have the power. So I think what we're headed for is a high interest rate environment and a slower economy, potentially a recession. Right now it's 50/50 odds of a recession is what most economists are forecasting.

Fair. And do you think that there at all, right, is a bubble in the housing market?

So, I don't believe that there is a bubble in the housing market. If there was a bubble in the housing market, it would have popped in 2023 or 2024 when interest rates started going up. But instead of values dropping, we saw both sellers and buyers pull back. Now, if we enter into a recession and people lose their jobs, we probably will see more homes listed for sale becausePeople are trying to get out of their large mortgages. You have to remember that most homeowners have really cheap mortgages and they have excellent credit scores. The credit scores of home buyers went way up during the pandemic and it stayed up. Like, these are people with 700+ credit scores. They're the kinds of people who aren't going to end up in foreclosure. And at the same time, the banks and lenders are a lot more willing to work with homeowners now.than they were in 2008. During the pandemic, we had forbearance where if you lost your job, the banks and lenders would work with you to redo your mortgage, so you're paying more at the end and less, right at this moment. And we'll probably see more restructurings like that because it's just better for the lender and for the homeowner. But that means we're not going to see many distressed sales. And without distressed sales, you won't see a drop in values.

Yeah, very interesting. Thank you for that. And obviously, right, like, if we talk about kind of during, you know, COVID and the rise of work from home, obviously working at Redfern, you get to see a lot of the kind of migration trends where people are moving from kind of big cities, going to places in the South where it's warmer or places where there might not be any income tax.What are you seeing now, if you're able to kind of comment on any of that? Are there any kind of hot areas that people are moving to or any, you know, hotspots or any places that you think will be booming from a real estate investment standpoint?

Migration has slowed way down with the rise in interest rates, so the homeowners who are locked in, they're just not the kinds of people who are going to be selling their home or moving somewhere new right now. But in terms of the places that people are moving, we're seeing a return to the big expensive cities that people left during the pandemic, like, uh, San Francisco is doing better, New York is doing better, Los Angeles is doing better because of return to office.Remote work is still more prevalent now than it was before the pandemic, but a lot of companies are calling people back. And especially when unemployment is potentially rising, workers can't really, you know, negotiate for a return for remote work. They got to do what the employer wants them to do. Um, another place though that is going up in value is the Midwest. And the reason the Midwest is going up in value right now is thatLike the last affordable region in the country. The South has gotten more expensive and rising insurance costs are making it even less affordable to be a homeowner there. The coast are still really expensive, but the Midwest still has, uh, you know, a pathway for the middle class to become homeowners, and that's supporting rising demand and rising home values in places like Chicago, Milwaukee, Cleveland, Columbus.

Thanks. Wow. That's interesting. Obviously, I'm a Midwesterner. Uh, but listen, when we look at your resume, it's stacked, right? MIT PhD, you got to study under, you know, Nobel Prize winners, chief economist at Redfern, but now we got something new on the resume. Adding to that is author. Let's talk about your new book, Hate the Game.

Yeah, so hate the game. I wrote this to teach people how to use economics in their everyday lives, and specifically game theory. Game theory is all about how, you know, an interaction between two or maybe three people will play out when they all want different things. And I think that's what people are often interacting in the workplace.They want a promotion, but their boss doesn't necessarily want to give it to them. They want to apply for a new job, they need to figure out how to get the recruiter to hire them, or, you know, they're deciding whether to quit a job and go work somewhere else, maybe negotiating salary. All of these can be modeled as games. And once you understand concepts likeUm, marginal costs and marginal benefit or your inside option versus your outside option. It makes it a lot easier to make these decisions in a way where over time you are going to get closer to whatever your goal is. And I'm pretty agnostic about what that goal is. I don't think it's all necessarily about money, a lot like lifestyle is definitely a big part of it, but still using these principles, you can get closer to the kind of career and life that you want.

Well, I remember studying a little bit of game theory. I was, uh, I studied at the Wharton School, so we did a decent amount of kind of game theory and, um, but right to the viewers, right? If you're that person that's kind of working corporate, trying to get a promotion, you're trying to get a raise, what's that advice from a game theory strategy standpoint, right? If you've been working there for 23 years, to your point, right?The economy is potentially not potentially, the economy is slowing down. There's a rise and a recession.How do you balance kind ofHaving job stability while simultaneously trying to raise up the rankings.

It's all about understanding what people's inside options are versus their outside options. So, let's simplify this. You're just going to your boss, let's say you only have one boss, and you're asking them for a promotion. What you should think through is, what are your boss's options? What would they do if you decided to quit if you didn't get the promotion? Would they be able to easily hire someone to do the job that you do? Are there people already working at the company who can do the job thatYou do, or are you more unique and it would be really hard for them to replace you. Also, think about what their options are, like as a company as a whole. Is the company trying to lay people off and trying to cut staff? Would this actually be something that they want for you to walk away because you didn't get the promotion that you wanted? Or are they trying to grow and you're really critical to their growth? Understanding all that can help you likePredict what's going to happen in the negotiation and help you understand how far you can really push it with the person you're negotiating against. But a lot of advice books that give like simple principles like, you know, say the first number or don't say the first number. But what I really advise is really taking every situation as unique and understanding what the players want, what you want, and what the person you're negotiating against really wants is how to get the best strategy.

Listen, I could ask you questions all day about the housing market, but we're in the midst of the biggest game theory and we're all caught in the middle of it. So look, we're gonna take a quick break.And we're going to have more with Daryl Fairweather when we come back, but I definitely want to talk about game theory when it comes to all these tariff negotiations with the 150 countries. Don't go nowhere. We'll be right back.Welcome back to Financial Freestyle here on Yahoo Finance, and it's your boy Rowmack, and look, we're in the middle of a real good, amazing convo, right? We're talking with Darryl Fairweather and we're talking about game theory, and I think we all can understand, right, and actually appreciate game theory because we're seeing it play out in our lives, right? Right now.If you don't know, if you've been under under a rock, Trump is in the midst of trying to negotiate with 150 countries, right? And I always learned when it comes to game theory, and you mentioned it earlier, right? It boils down to negotiation power, who has the leverage. And so if you are the leader of the free world, if you're President Trump, how are you going about approaching these tariffs to actually get, you know, trade imbalance, you know, how would you approach this?

The most important thing to know about these trade negotiations is that they aren't just one-offs, they are repeated games. The behavior that the US engages in in this negotiation will change these other countries' opinions of how they will engage with them in the future. And when you have repeated games, it's really important to build trust and show that you're the kind of person who is willingTo cooperate, that you believe that there are mutually beneficial outcomes. If you get into a mindset of tit for tat, where you're going to punish the country you're negotiating against, then they're going to punish you back. It's the classic prisoner's dilemma. And in the prisoner's dilemma, you can cooperate and have a better outcome. You can not snitch.On each other and potentially get out of jail. But if you snitch on each other, then you're both going to be worse off. And what, how this relates to the trade is that you can get these short term gains by snitching or by having a tariff, but it just results in more reciprocal negative, uh, actions later from the other country and you get locked in this tit for tat. I talk.about this in the chapter on marriage, because being in a trade negotiation actually is kind of like being in a marriage, because it's not just about today. Like if you win one argument about like, say, whether you're going to go to, you know, your in-law's wedding, down the line, you know, you're gonna might lose a different argument because your spouse is mad at you about that first argument, and that's the same thing that happens with trade negotiations.

Let's get back, you know, to your book, right? Hate the game. Why should anybody listening, who's this book for and why should they buy it?

So this book is really for people who feel like economics is not for them, the economy is unfair, and they just kind of checked out on advancing their career, figuring out a path to succeed in our capitalistic economy. But what I want people to take away from this book is that they shouldn't hate themselves, you know, don't hate the player, hate the game. You can recognize that the economy is unfair, while still engaging in it and trying to win. And the truth is that one of theThe reasons that the economy is unfair is the people who are in power got there and don't recognize the biases or the advantages that they may have had, and they don't see any reason to change the system because they benefited from the system. But what I hope is that people who really do care about changing things can learn lessons from this book, advance, get to a place where they have the capacity to make changes and they can be aware of all the inequities at the same time.

You know, to a person that reads your book, what is the mindset that they're going to leave with that's going to actually help them not only adapt to the game, learn the game, and hopefully finesse the game and you know, get higher in life.

I think after learning economics and game theory, you're going to be able to see what's really going on and understand how to make moves where you're going to be insulated. Like, we talk about the trade war, understanding how this trade war is going to play out, which countries are going to be affected, which sectors are going to be affected, can help you navigate around.these situations that you have no control over and feel more confident in the moves that you make. Because if you know that you're making the right move in that right moment, or at least the best move that you're capable of making, eventually you're going to get closer to your goal. It just takes time and even with all the challenges that happen, you can just better navigate around them.

I love it. I love it. And so right now, you know, as we kind of get closer to the end of this podcast, I will say this has been action packed, right? We talked about housing, game theory, we're talking about your book and I think that, you know, maybe we could come back to housing and leave people with one, right? Why they should buy your book, but also how to approach the, you know, housing in general, right? I think thatAnd a few, maybe a month or two ago at this point, we had the CEO of Better.com, right? And we talked aboutLiving the American dream, and obviously,You know, how much more.Expensive it is to live the American dream. And so what do you say to a person, even from a game theory standpoint, right, that is, you know, not feeling as confident when it comes to being able to afford the American dream?Of that being buying a home and affording a home.

Yeah, I write about how to make the choice of when and whether to buy a home. And a lot of it just comes down to your personal circumstance. Like, can you afford the mortgage for the kind of home that you want to live in? Would you be happy, you know, maybe going down in your budget if that was necessary, or would you be better off renting? One trade-off that I think a lot of young people who are trying to get ahead in their careers face is that they need to live in really expensive cities in order to get ahead in their career, where it's going to take longer for them to get to a place of homeownership.But if that's your plan, if you are, say, going to live in New York or San Francisco and you're going to rent, just know that like now the goal has to be that you need to increase your earnings faster than rents are going up, or faster than mortgages are going up. And that's a, that's that's a good goal, but that's the goal you have to strive for versus if you're, say, living in the Midwest and home prices are more stable, you're probably going to be able to get into homeownership a bit early, and you're not going to have to make those hard trade-offs as much.

I love it. Well, listen, right? If, if you are leaving the audience with some game, right?If you could talk to a younger 18 year old Daryl, what would that be?What

advice wouldyou give yourself.Trust yourself, build your skills, your skills are going to be the thing that really sets you apart in life and gives you the opportunities. But yeah, if you build your skills, if you make moves that you know are right for you, don't listen to the social pressure, don't listen to, don't watch what other people are doing, just be confident and the moves that you make and you can do that if you understand economics. So I'd say keep going with the economics.

Keep going. I love it. And then one last thing is bring it back. We didn't really talk about this.Obviously, there's a, a threat, right? One of the biggest things when it comes to housing, to your point, was there wasn't enough supply to meet the demand. Um, and now they're both kind of stagnant. Um, when we think about the huge supply issue, and you get, you know, Wall Street, AKA BlackRock buying up all these single family homes, but now you have a president that is effectively, you know, coming down on, you know, immigration.Um, how do you think that continues, right? Where, where do you see housing prices going from here? And once again about that American dream, will it ever be affordable?

So housing market, it's in a really tough spot, and I think if we enter into a recession and the trade war looms, it could hurt home values. It's possible that home values go up slower than inflation, which means in real terms, homes are going down in value. It's even possible that homes might go down, say 1% nominally, but I don't think they're going to go down much more than that.We're not going to have a 2008 situation where people go underwater on their mortgages, where we have these four sales like we talked about. And what that means is that I think it's just kind of going to be another lost year for housing in terms of uh supply and demand. Builders aren't going to want to build when they're facing tariffs on materials and labor shortages because of immigration policy.Well, I'll leave with the silver lining is that the federal government doesn't actually control housing policy. It is almost always the state and local government that is determining how much housing can be built, and this is one area where anybody can get involved. You can show up at your local planning commission and have your voice.in terms of wanting more housing to be built. This is a great way to advocate for really everyone being better off. You know, the most vulnerable people are the ones who end up homeless when rents go up. So if you want to make the world a better place, like a little small thing you can do is just go complain at your local planning commissions.

Well, listen, I can't say thanks enough. This is extremely action-packed, extremely informative. I want to give a special shout out to Ms. Darryl Fairweather. Thank you for joining. And that's it for this episode, people. Once again, when it's all said and done, make sure you tune in here every Monday to Financial Freestyle here on Yahoo Finance. And if you're watching this on YouTube, make sure you scan the QR code to watch other podcasts in our network. More importantly, like this, share, subscribe, tell an auntie, tell a friend till next week.

This content was not intended to be financial advice and should not be used as a substitute for professional financial services.