Four of the seven are in Texas: Austin, Houston, Dallas and San Antonio. These markets did not surge and crash during the last housing boom. Instead, they were fueled by oil and gas, which pushed both prices and population. Prices there are now at historic highs, with Dallas home values 15 percent above their peak in 2007. Austin home prices are 39 percent above what CoreLogic considers sustainable. Texas has been here before, but for different reasons.
"It doesn't mean we will see what happened in the early '80s," Khater noted, referring to the real estate crash back then. "Because the Texas markets are not nearly as overvalued as they were then. There is also not the same dislocation in nonoil segments."
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The Texas economy is far more diverse now, with technology, health care and insurance sharing the wealth. The state is therefore not nearly as susceptible to movements in oil prices. That said, home building analysts are watching Texas carefully, waiting to see any impact lower crude prices will have on both jobs and housing demand.
Also on the list is Charleston, South Carolina, where home prices are still below their peak of 2007 but where prices are considered overvalued.
"They're one of the healthiest markets in the country. They have good job growth and very strong newly built home sales," said Khater.
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Miami and Washington, D.C., round out the list of seven, but home prices in both markets are still well below their 2007 peaks. Miami is being fueled by foreign cash, which accounts for the gap in home prices and local median incomes. Washington, which includes the northern Virginia and Maryland suburbs, is one of the most affluent areas in the country. It has also not seen enough home construction, both of which push home prices higher.
While these seven cities are considered overvalued, they are also regarded as healthy, at least according to Khater. That is because prices are being driven by low inventory amid subpar demand, not by easy credit and, as happened during the last housing boom, outright fraud among both borrowers and lenders.
"They can be overvalued, but be active and healthy and not so out of whack that it implies a bust," he added.
They are, however, worth watching, especially Texas, where oil could still have a negative impact on the health of housing.