Lot of people undermined Madrid with their squad in CL and LaLiga last season too but they came out as a winner but they showed great spirit and became champions of both. Madrid are strong candidates in my opinion. Barca are also a strong candidates but I have my slight doubts still.
Did a lot of people truly undermine real madrid last season, they had a strong squad from the beginning of the season, in the league it was sure they will win it very early into the season because barcelona and other contenders didn't start too well, so madrid were left all alone in a 'one' horse race, for the champions league i can agree with you that many people did not include them as their favorites to win it, but neither were they ruled out, with what they have done in the competition, they are always in the picture to win it. The La Liga will be tougher this season, the transfer window was good for barcelona, so they may be back to fight for the title.