。
She lives in the house next door to us.
Literal
She [topic-は] our next-door house [in-に] is-living.
住む ('to live, to reside') almost always appears in the stative ~ている form when describing where someone lives — Japanese treats residence as a continuing state rather than an action. The plain 住む would describe the act of moving in. Note the kanji 隣 ('next door, neighboring') — a productive prefix in compounds like 隣の人 ('the next-door person'), 隣町 ('the neighboring town'), 隣国 ('a neighboring country'). The verb is unusually written すんでいる in kana here; it could just as easily be 住んでいる.