A correct version would be:
* Friedrich tanzt in dem Haus. (Friedrich dances in the house.) This is the most natural and common way to say it.
Other correct options, though less common, include:
* In dem Haus ist Friedrich am Tanzen. (In the house, Friedrich is dancing.) This uses the progressive form.
The original sentence tries to imply "Friedrich dances in the house" but fails to explicitly state it.