I don't know if they are overrated but they are not a great team anymore. To me they are just another good team; nothing sets them apart to be one of the best 3 teams in the world as they used to be.
ELITE, Guti is good but his problem has been consistency. In fact, that's the problem Madrid has had in general over the past 5 years. Don't get me wrong, Guti can be the best playmaker in Spain on certain days, but too often his inconsistency gets to him.
Madrid is still #1 in Spain, but that's where I'll leave it. All the Spanish teams seem to be beating up on each other and nobody is standing out this year. Last season, Barca and Madrid were by far the best, but this season it's been pretty damn close with nobody standing out. Real Madrid main obstacle will be the Champions League. They haven't been able to do well in the competition in so long, and as long as they keep failing in Europe, they won't be considered on of the best teams around.