Shell Shock

It seemed like such a good idea, right after World War II, for those Americans for whom a house had always been a dream house. The shell home came along, providing an inexpensive (average cost: $3,000), wall-to-wall do-it-yourself kit that was finished on the outside but left the interior up to the buyer. The shell house industry that started out so promisingly has just gone through one of the crudest shakeouts in business history, and is emerging a vastly smaller but much stronger part of the nation's $25.6 billion housing business.

Shell homes were launched 17 years ago by an enterprising young truck driver named Jim Walter, who went into busi ness with $600 borrowed from his father. The idea had great appeal to returning servicemen, who did not yet have it made and were handy with their hands. By 1961, shell firms accounted for 8% of the one-family housing market and had be come one of Wall Street's bets on the future. But fast-buck builders swarmed in, competition stiffened, and many firms began putting up frames with little regard for quality or adequate financing. The in evitable reckoning came last year, when defaults and repossessions drove 90% of the 200 U.S. shell builders out of business, including eight of last year's top ten.

Desire to Dethrone. The two big survivors of the top ten are both Southern: the redoubtable Jim Walter Corp. of Tampa, Fla., and Modern Homes Construction Co. of Valdosta, Ga. Unlike other firms, whose skimpy financing forced them to rely on high interest mortgage money, Walter and Modern Homes carefully, developed lines of credit that enabled them to do their own financing. An affable, smooth-talking Floridian who is a wealthy man at 40, Walter carefully built up his company until it now has 150 branch offices and is the second larg est homebuilder (after National Homes Corp.), with sales last year of $30 million and earnings of $1,800,000. Last week Walter took over as chairman and chief executive officer of Chicago's Celotex Corp. (a maker of building materials that could go into his homes), which he controls with a 50% interest.

Ralph Smith DeLoach, 51, who founded and heads Modern Homes, is a onetime lumberman with a fierce desire to dethrone Walter as king of the shell home business. A tough-talking and frugal Georgian, DeLoach started in 1956, now has 63 offices in 13 states. By carefully watching his costs (on one home he even weighed the nails), he has made his company perhaps the industry's most profitable, came out of 1962 with $22.5 million in sales and $1,700,000 in earnings.

Beans & Potatoes. Today's shell home buyer who has the cash can pay as little as $1,395 for a pure shell or as much as $7,800 for a semi-finished home (he pays some 70% more on the installment plan), can also buy a kit to finish the interior himself. Both Walter and DeLoach are moving toward more "livable" homes that are finished enough to qualify for FHA loans, but shells are still their main business. "We're selling to the bean and potato boy," says DeLoach, "and he's got a yard full of children. These people have to have somewhere to live."

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