Apparently we have to level up to a certain point before we're allowed to have free roam. Until then what you have to do is go to kingdom mode and click on the quests button. Once you select a quest you should be able to go back to normal.
If it's the first new building you've built after completing the first quest, then you need to click the Quests button (it's sort of the center of the rightmost buttons that don't include the furnish options) and pick a new quest in order to get back into the 'live' mode.
It's a little tricky and I don't think the game actually explicitedly tells you to do such.