How to modify and redirect the tankless water heater steam exhaust away from the house?
The fact that this is PVC (type IV ducting) tells me this should already be a condensing unit, so the amount of steam should already be minimal.

There's nothing stopping you from projecting that pipe further away from your house as long as it doesn't get withing 3 feet of your neighbor.

Based on your interior pictures, I'd recommend just drilling another hole in he side of your house closer to where your unit (which is generally the preferred way to vent the unit), which should move the steam far enough from your house vent based on the pictures you provided.

Else, if you think you are still likely to have issues with the exhaust, you really should move it up to the roof / chimney.

However, as long as you don't obstruct the airflow, you could minimize the steam of the current outside vent by running it into something like a dryer vent bucket:
https://www.homedepot.com/p/Everbilt-Indoor-Dryer-Vent-Kit-TDIDVKHD6/203626526

Be aware, that the exhaust from high efficiency water heaters is acidic and will eat away at any metals that might be part of your pail setup.