When compiling VIM with specific version of Python support while there is different default version of Python on your system it's important to note following caveats:

• Pass --with-python-config-dir flag with the path to Python's config directory
• Remove src/auto/config.cache file if you've executed ./configure before without passing the --with-python-config-dir flag. This was the tip I missed and spent an hour or two on failing to compile properly
• Run make clean if you compiled VIM before and it didn't work out

Anyways if in doubt here is the list of commands I had to execute in order to successfully compile VIM with Python 2.7 support from scratch (make sure to check your Python's config directory path and adjust accordingly):

cd /usr/local/src
wget ftp://ftp.vim.org/pub/vim/unix/vim-7.4.tar.bz2
tar -xjf vim-7.4.tar.bz2
cd vim74
./configure --prefix=/usr \
--enable-pythoninterp \
--with-python-config-dir=/usr/local/lib/python2.7/config
make && make install