I'm so sorry to hear she is doing this stuff. Please don't feel like you giving her space was the trigger for this. I am absolutely convinced that she would be saying "you smothered me to death and so now I want out" if you had done that instead. More projection.
I also don't think that your failure to validate what she was pouring on you has done you a disservice. I would have been in shock just as much as you.
Just the fact that she wants to move out, but expects you to maintain the current property for the kids speaks of her disconnect from reality. She's telling you that is what she wants because if your kids keep their home, it lessens the load on her conscience.
You haven't done anything wrong, Grizz. Don't carry her portion of guilt. It's not yours to carry.
Now do your absolute best to show her you will be fine without her!
