The AHD says that the prefix "over-" "is joined with the following element without space or a hyphen". (over- - definition of over- by the Free Online Dictionary, Thesaurus and Encyclopedia.)
I'm certainly not the right person to answer the question, but I would be interested to know what the reason is behind it. Is it just an intangible feeling or something that can be explained? I'm asking because I can't see what could be wrong about "overly" here.
Retired English Teacher